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Goal Gradient Hypothesis For Financial Advisors: How To Motivate Your Staff and Clients To Achieve Long Term Goals

Date: December 29, 2021

This next blog in my series on how to use UX laws to run your financial advisory practice, I’ll be looking at the goal gradient hypothesis. The basic premise that humans are better at motivating themselves for short-term goals than long-term ones is important to understand as you work with clients on their more distant financial goals and as you design incentive strategies for your team. Let’s take a closer look at what the goal gradient hypothesis is about and then I’ll give you some tips for applying it to your client relationships and to managing your team. 

What Is the Goal Gradient Hypothesis?

According to the Laws of UX website, the hypothesis states that, “The tendency to approach a goal increases with proximity to the goal.” Essentially, the closer a person is to achieving the goal, the more motivated they are to work harder to reach it. 

In a University of Chicago study on the phenomenon, researchers observed customers who were given stamp cards that offered a free coffee once they’d bought 10 coffees. They found that customers who got a 12 stamp card with two stamps already on it were buying coffee more often than customers who got a 10 stamp card with no stamps on it. 

Both groups needed to buy 10 cups to get the free coffee, but the group that felt like they’d already gotten a couple stamps closer to the goal were more motivated. Similarly, another study found that people were more likely to donate to a charitable campaign when it was close to its funding goal.

How to Apply the Goal Gradient Hypothesis to Team Management

In the office, the best way to apply this principle is to rework your incentive structure to adapt to this human trait. If your employees always have a particular end goal to look at, they’ll always be motivated to work that extra bit harder to reach it.

If you give out annual bonuses, for example, consider breaking it up into quarterly or semi-annual bonuses. Even if the total amount stays the same, dividing it into multiple smaller payouts will keep the goal in view.

You could also weave in more frequent non-financial incentives or low-cost prizes to keep team members motivated in between bonuses. Offering gift cards, vouchers, or other fun prizes tied to monthly performance metrics can be an affordable way to keep the goal post in view, for example. Other low-cost rewards include:

  • Extra vacation days
  • Flexible scheduling perks such as the ability to telecommute 1-2 days of the week instead of coming into the office or the ability to adjust their schedule
  • Award presentations that recognize team members’ accomplishments from the past month or quarter
  • Leadership or growth opportunities like the chance to take the lead on a project or to receive training or mentorship that helps them work toward their career goal

For example, you might offer a bonus for each fiscal quarter that the firm brings in, say, $25,000 in new revenue. During the quarter, offer smaller rewards for performance metrics or milestones that help work toward that quarterly goal like gift cards or flexibility perks for employees with the fastest follow up time when it comes to responding to prospective or client emails or sending out documents or employees who bring in the most prospective clients through your firm’s marketing strategies.

How to Apply the Goal Gradient Hypothesis to Client Relationships

For clients, this phenomenon typically means that they might not have the same motivation to work toward their more distant financial goals than they do for their immediate ones. 

Increasing the amount they put toward retirement or their children’s college fund, for example, when they’ve got other financial obligations and more immediate goals — like maybe saving up for a home renovation or a vacation — might not seem realistic or even all that urgent when their children are still in diapers or they’re still 20+ years away from retirement.

However, as a financial advisor, you know that the earlier your client starts, the better. The question is: how do you motivate your clients to save more for these distant goals? After all, you can’t exactly move the goal post of retirement or their children’s college start date closer like you can with bonuses and other incentives for your team. 

In my experience, using visuals and details helps a lot. During review meetings, I’d show them how much progress they made toward their goal so they can see how much closer they’re getting. Seeing that they are closer now than they were a year ago can trigger that motivation the same way those study participants with the coffee stamp card started buying more coffee when they saw that they were closer to earning the free coffee.

I also made sure to talk about more than just the numbers. While the financials are important, the real motivating factor is not the money they’ll have in retirement but what kind of retirement they’ll be able to enjoy with that money. I might talk about that world cruise they’re looking forward to taking or the traveling they will do when they retire. Paint a picture so that the client feels more emotionally involved in the goal despite how far away it might be.

You can also try tying it to shorter term goals. For example, when the client hits their retirement savings goal for the year, they can take a family vacation. If they don’t hit that goal, though, maybe they need to postpone that vacation. Linking that distant goal to something more immediate makes it easier to maintain the motivation to keep working toward it.

You can also use this goal gradient hypothesis for clients who are nearing retirement. Say you have a client who is five years away from retiring. In this case, you can leverage the fact that humans are naturally more willing to work harder when the goal post is in sight to encourage extra savings. It might not have the time to really compound, but every extra bit of savings now will add to what they get to spend in just a few years from now. 

You can use visuals to show your client a couple retirement scenarios: one where they just keep doing what they’re doing and one where they live a little more frugally for the next couple years in order to put more toward retirement. This will show the impact those extra savings will have and help them decide what degree of tradeoff they’re willing to make for the next five years in order to have even more to spend for the 25 years or so after that.

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