Human Behavior Hacks Every Financial Services Marketer Should Know

Human Behavior Hacks Every Financial Services Marketer Should Know

Written by: Danielle Stitt

Email. The cornerstone of any financial services marketer’s kit bag. Not the shiny object it once was after Digital Equipment Corp marketing manager Gary Thuerk sent the first “mass” email in 1978.

However, a quick look at Google Trends and the term “email marketing” has stood the test of time, showing steady interest over the last five years while other marketing channels have ebbed and flowed.

So, if you are going to use email in your marketing mix in 2017, then let’s make sure it’s as effective as possible.

One of the presenters at Inbound16 was Nancy Harhut, who’s won over 150 awards for direct marketing effectiveness (with creds like that she got my attention!), presenting “10 Human Behavior Hacks that Will Change the Way You Create Email”.

Here’s what I learnt.

We all use decision making shortcuts as a way to conserve energy and speed through our waking day. Marketers can use this to our advantage by leveraging the following human behavior hacks to improve the chances your readers notice, open and act upon your email communications. 

Tip 1: Magic words in subject lines
 

A boring subject line is not going to perform as well as a subject line that compels you to click through, right? However, the finance sector is not an industry that can indulge in blatant click-bait subject lines. This is where “magic” words or “eye magnet” words are your friend.

  1. NEW – one of the top 5 most persuasive words (synonyms also include now, introducing, discover, announcing etc.). It appeals to the human brain’s need for novelty, news and newness
  2. FREE – spam filters can catch this so test but Nancy posited the use of FREE can lift open rates by 10%
  3. RECIPENT’S NAME – apparently we all like the look of our own name and Nancy has seen open rates increase by 29% when the recipient’s name was included in the subject line
  4. SECRET – making your readers feel they have information that isn’t widely available saw open rates increase 11% (think “confessions of” too) but check with Compliance first!
  5. ALERT – humans are hard wired to look out for danger… and breaking news… and could lift your open rates by 33% according to Nancy
     

We also have to remember that a lot of email is read on mobile so word length is important - think 35 words or less, and front-loading your “eye magnet” words to avoid them being truncated.

Tip 2: Position your message for a fast response
 

Humans respond to two action-inducing principals: scarcity and exclusivity. We hate to miss out (we didn’t call our newsletter FOMO Friday for nothing!). If your reader feels time-pressed or special, they are more likely to respond. This is where Nancy saw a 17% increase in click-through rates from the inclusion of a countdown clock. 

Tip 3: Ripple effect of the scarcity principal
 

Garnering the first “yes” is the hardest but once your reader has taken that first positive action, it’s easier to encourage them to say “yes” again. The trick to activating the first yes is to make it a small ask. Subsequent yeses are made easier if the first “yes” was public (for instance on social – see Tip 4) and if you remind them they said yes before. You can ask for larger commitments as you go.

Tip 4: The benefit of social proof
 

Decision makers, both personally and professionally, look to social proof prior to making a purchase decision. We trust the opinions of others, particularly if they’re like us. If you can show your reader how others like them have taken up your offer, they are more likely to make a purchase decision.

Tip 5: Negativity can deliver positive results 
 

People are twice as motivated to avoid pain as they are to achieve gain. This is why cash investments paying almost zero interest are so popular after major economic downturns or times of uncertainty. By highlighting the potential pain, e.g. “Don’t let inflation destroy your investment returns”, they open themselves to a solution that helps them avoid a negative outcome.

Tip 6: Availability bias turns doubters into buyers
 

We use our past experiences and memories to decide the likelihood of an event occurring. For example, if your client had a bad experience when dealing with your customer service team, they are expecting they’ll have a similar experience next time. To use this to your advantage, stir your readers’ memories or imaginations before you ask them for a response.

Tip 7: The authority principle to make you look better than your competition
 

Children are taught to respect and respond to authority from the get-go ensuring by adulthood this is well ingrained, making us hard-wired to listen and follow anyone that presents authority. In business, we position brands and spokespeople as leading experts through commentary in the media, releasing research reports, securing ratings and so on. We’re all familiar with the term thought leader, I expect. And your clients respond to hearing from the leading expert. 

Tip 8: The power of “because”
 

This is one of my favourite tips. Nancy referred to psychologist Ellen Langer’s experiment where an office worker jumped the photocopier queue. When the worker asked if they could go ahead of the person in front, the probability of the person agreeing was increased from 60% to 94% if they used the word “because”. It didn’t matter what the reason was, “… because I’m in a hurry” was about as successful as “… because I have to make some copies”. Perhaps try that in the coffee queue tomorrow!

Tip 9: The journalists’ secret that boosts readership
 

The information gap theory is that humans will act to close the gap between what we know and what we want to know. Journalists are taught to answer the 5 Ws + the 1 H i.e. who, what, when, why, where + how to ensure their article leaves no question unanswered. And marketers can encourage action by highlighting an information gap with subject lines like “How to boost your savings”, “Why under-insurance can leave you stranded” or “When using a fund manager makes sense”. 

It’s also worth noting that numbers stand out in a sea of words because they promise ease and order. And if including numbers in your subject line, Outbrain’s study of 150,000 article headlines found that odd numbers are perceived as more credible than even numbers. The exception is 10 and its multiples which also work because they are cognitively fluent.

Tip 10: The Von Restorff Effect
 

In 1933 Hedwig von Restorff’s experiments on memory found that if you want people to notice, make it distinctive. For marketers, Nancy recommended piggybacking on holidays and celebrations, customer birthdays, and anniversaries. People notice and remember things that standout and special days clearly fit into that category. E-commerce and retailers have mastered this with sales around the end of financial year, Boxing Day, Black Friday, Easter etc etc.

However, the major holidays or events can be crowded from a marketing message point of view so Nancy suggested leveraging minor holidays or even inventing your own celebration/ remembrance day which works too (I’ve scheduled in World Compliment Day on 1 March, have you?!).

Carden Calder
Marketing
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Carden Calder is a consultant, marketing commentator, and passionate advocate about the importance of financial decisions in Australians’ lives. Since 2004, she has grown Bl ... Click for full bio

Alternative Beta Strategies: Alpha/Beta Separation Comes to Hedge Funds

Alternative Beta Strategies: Alpha/Beta Separation Comes to Hedge Funds

Written by: Yazann Romahi, Chief Investment Officer of Quantitative Beta Strategies, J.P. Morgan Asset Management

A quiet revolution is taking place in the alternatives world. The idea of alpha/beta separation has finally made its way from traditional to alternative investing. This development brings with it a more transparent, liquid and cost-effective approach to accessing the “alternative beta” component of hedge fund return and a new means for benchmarking hedge fund managers.

The good news for investors is that the separation of hedge fund return into its components—rules-based alternative beta and active manager alpha—has the potential to shift investing as we know it. These advancements could democratize hedge funds and, at long last, make what are essentially hedge fund strategies available to all investors—even those who aren’t willing to hand over the hefty fees often associated with hedge fund investing.

A benchmark for alternatives


With respect to traditional equity investing, we have long accepted the idea that there is a market return, or beta—but this hasn’t always been the case. Investors used to assume that to make money in the stock markets, one needed to buy the right stocks and avoid the wrong ones. The idea of a market return independent of skilled stock selection seemed ridiculous to most market participants. Yet today, we would never invest in an active manager’s strategy without benchmarking it against its respective beta.

Interestingly, hedge fund managers have been held to a different standard. Investors have been much more willing to accept the notion that hedge fund strategy returns are pure alpha, and that their investment returns are based entirely on the skill of the fund manager. That notion explains why investors have been willing to accept a “two and twenty” fee structure just to access what has been perceived as one of the most sophisticated and powerful investment vehicles available.

In thinking about the concept of beta, consider its precise definition—the return achievable by taking on a systematic exposure to an economically compensated risk. In traditional long only equity investing, the traditional market beta has been further refined as a number of other risks have been identified that are commonly referred to as “strategic beta.” These include factors such as value, momentum, quality and size. But no one ever said that these risk factors must be long-only.

Over the past decade, as more hedge fund data became available, academics began to disaggregate hedge fund return into two components: compensation for a systematic exposure to a long/short type of risk (alternative beta), and an unexplained “manager alpha.” What they found is that a significant portion of hedge fund return can be attributed to alternative beta. That fact has turned the tables on how we look at hedge fund return. With the introduction of the alternative beta concept, hedge fund managers will have to state their results, not just in terms of total return, but also as excess return over an alternative beta benchmark.

Merger arbitrage—an alternative beta example


The merger arbitrage hedge fund style can be used to illustrate the alternative beta concept. In the case of merger arbitrage, the beta strategy would be the systematic process of going long every target company, while shorting its acquirer. There is an inherent return to this strategy because the target stock price typically does not immediately rise to the offer price upon the deal’s announcement. This creates an opportunity to purchase the stock at a discount prior to the deal’s completion. The premium that remains is compensation to the investor for bearing the risk that the deal may fail.

Active merger arbitrage managers can add value by choosing to invest in some deals while avoiding others. Therefore, their benchmark should be the “enter every deal” strategy, not cash. In fact, the beta strategy explains the majority of the return to the average merger arbitrage hedge fund. And it doesn’t stop there. Other hedge fund styles that can be explained using alternative beta include equity long/short, global macro, and event driven. Note that the beta strategy invests in the same securities, using the same long/short techniques as the hedge fund strategy. The difference is that the beta strategy is a rules-based version that can become the benchmark for the hedge fund strategy. After all, if a hedge fund strategy cannot beat its respective rules-based benchmark (net of fees), an investor may be wiser to stick to the beta strategy.

Implications for investors


What does all this mean for the end investor? Hedge funds have traditionally been the domain of sophisticated investors willing to pay high fees and sacrifice liquidity. Alpha/beta separation in the hedge fund world means that investors can finally choose whether to buy the active version of the hedge fund strategy or opt for the passive (beta) version. Hedge fund strategies can be effective portfolio diversifiers. Now, through alternative beta, virtually all investors can access what are essentially hedge fund strategies in a low cost, liquid, and fully transparent form. For investors who haven’t had prior access to hedge funds, this could be welcome news. Not only can investors look at an active hedge fund manager’s strategy and determine how it has done compared to the systematic beta equivalent, they can also invest in ETFs that encapsulate these systematic strategies.

When looking at one’s traditional balanced portfolio today, there are plenty of questions around whether the fixed income portion will achieve the same level of diversification it has provided in the past. After all, with yields still low, there is little income return. Additionally, the capital gains that came from interest rate declines are likely to reverse. With fixed income unlikely to adequately fulfill its traditional role in portfolios, there is a need to find an alternative source of diversification. This is where alternative strategies may help. For investors seeking to access diversifying strategies in liquid and low-cost vehicles, alternative beta strategies in ETF form are one option.

Looking for an alternative to enhance diversification in your portfolio?


For investors looking to further diversify their overall portfolio, JPMorgan Diversified Alternatives ETF (JPHF) seeks to increase diversification and reduce overall portfolio volatility through direct, diversified exposure to hedge fund strategies using a bottom-up, rules-based approach.

Learn more about JPHF and J.P. Morgan’s suite of ETFs here

DISCLOSURE

Call 1-844-4JPM-ETF or visit www.jpmorganetfs.com to obtain a prospectus. Carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full prospectuses contain this and other information about the ETF. Read them carefully before investing.
J.P. Morgan Asset Management
Empowering Better Decisions
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See how ETFs differ from other investment vehicles, learn how to evaluate them, and discover how ETFs can be used effectively to achieve a diversity of investment strategies. ... Click for full bio