CPA Advice’s Missing Link
Why clients don't act on your advice and what to do about it.
December 7, 2009
For millennia humans have known that apples fall from trees. It took Sir Isaac Newton to explain the forces at play. Similarly, CPAs have always known that, too often, their professional advice is not put into practice. Psychology and behavioral economics now provide explanations — and solutions as well.
Generally, the advice accountants provide is intended to either get people more money or keep them out of trouble (or both). For the purpose of this article, let's assume the advice is (a) worth taking, (b) communicated clearly, and (c) accepted by the client. Why in the world would anyone fail to implement?
The question is important because accountants are only helpful and valued if our advice produces results. If the “fail to implement” scenario is not familiar to you, and clients always follow your advice, consider that advice-based professions tend to “auto-select” clients. In other words, clients who follow through on our advice and benefit from it will likely come back for more — others won't. Therefore, all CPAs could be more successful if more clients put more of our advice into practice more often. And what a wonderful world this would be!
CPAs provide advice encouraging good habits like being organized, meeting deadlines, paying taxes, saving money, and planning for the future. The human brain, of course, makes such matters difficult. Our brains did not evolve to process financial complexity or plan decades ahead. Being so poorly equipped, people often fail to follow through on their intentions, and behave against their best financial interests.
Behavioral economics explains that the human brain does not always think of money in a rational way, due to “cognitive biases” (or peculiarities in how the brain processes information). For instance, Hyperbolic Discounting is the general tendency to prefer small rewards now over larger rewards later.
Blaise Pascal, a French mathematician and philosopher, fatalistically pronounced that "All our reasoning surrenders to feeling." Psychological research now suggests how reason can prevail. Although intelligence is at the mercy of our desires, surrender to them depends on individual self-control. Understanding the forces governing self-control can help act intelligently — which indubitably includes following wholesome CPA advice.
A marshmallow and Walter Mischel are to self-control what an apple and Isaac Newton are to gravity. In the early ‘60s, Mischel, a psychology researcher at Stanford University, offered a group of young children one marshmallow right away, or two if they could wait a bit. Whether a child was able to wait or not turned out to be a life-long predictor of success (e.g., greater educational attainment, professional success, social competence) for kids who were willing to wait for a greater reward, and of problems (e.g., more behavior problems, trouble with attention and relationships) for kids who chose instant gratification. Recently The New Yorker magazine caught up with Mischel, who offered insights from decades of follow-up observations.
According to Mischel, self-control hinges on the "strategic allocation of attention". Self control boils down to (1) bringing our attention back to what needs to be done or (2) taking our attention off what we shouldn't do. Clearly, allocating attention is easier said than done. However, it isn’t built on sheer will, but rather on mental tricks and habits. In the marshmallow experiment, for example, children who could wait distracted themselves by covering their eyes or singing.
Nagging On Auto-Pilot
Researchers have found success in using the internet, email and text to remind people to bring attention back to their goal. For example, a recent study found that texting reminders to people who want to save money has been effective. Other successful research involved losing weight and increasing physical activity.
Applying research to goal-completion in daily life, several websites now offer pragmatic solutions such as goal-tracking features and e-mail reminders. Mygoals.com, getgoaling.com and goalforit.com are some of them. The latter incorporates a social support network for people working on similar goals. Mylifechanges.com takes a gentle approach by placing specific actions in the context of personal values and identity. As such, it motivates action with the appeal of self-actualization.
Dean Karlan, a professor of economics at Yale University, takes an approach with more bite. In a Financial Times article, Karlan explains how social and economic pressure motivate task completion. Being accountable to someone and paying an immediate price for inaction raises the stakes. Stickk.com, a free website co-founded by Karlan, allows people to commit to a goal and chose consequences for failure. If they miss the goal, the website emails their friends and charges a preset amount to their credit card. Individuals pre-determine where the money goes. For added pressure, it may go to a person or an organization they dislike.
Some industries have jumped on the attention bandwagon. In the case of pharmaceuticals, failure to follow prescriptions has potentially dramatic consequences. To support medication compliance, companies such as MedPrompt and iReminder deliver medication reminders by phone, text or emails. Forgetting a CPA’s advice may not have the short-term drama of forgetting to take heart medication, but IRS notices have been known to cause heart palpitations…
The CPA Take Away
Now that we understand how research and technology provide the means to affect how diligently our advice is followed, they can be integrated into our daily workflow. Looking ahead, tax preparation software could allow recurring electronic reminders for tax payments due, tax-deferred account contributions, filing deadlines, mileage-log maintenance, etc. Financial planning software could integrate opt-in reminders for long-term goals (e.g. savings) or to-do items (e.g. beneficiary designations, titling assets to a trust, etc.). CPAs need not wait for development of industry-specific applications. For now, accountants can point out goal-achievement websites and suggest how they can be used to support the particular tasks recommended. For example, CPAs who are Personal Financial Planning Section members can use Forefield Advisor to periodically send groups of clients relevant information and reminders.
The Missing Link to the advice we give is the means to overcome behavioral hurdles to its implementation. Good advice is based on what a client should do, but is limited by what a client will do. Recognizing that acting on financial advice requires side-stepping the trappings of our all-too-human brains, CPAs can be more effective by suggesting goal-completion tools which facilitate implementation. Remembering to bring these tools to our clients shouldn’t be difficult — we can use them ourselves.
Jean-Luc Bourdon, CPA, PFS is an advisor with Walpole Financial Advisors, LLC in Goleta, CA. Bourdon volunteers as financial literacy advocate. He also currently serves on the UW-Platteville’s Distance Learning Alumni Advisory Board. Visit the personal financial planning resources at AICPA’s PFP Section. Join the PFP section or to apply to become a PFS Credential holder.