A topic of increasing discussion amongst financial advisors is whether it’s truly necessary to dress up in order to attract and retain clients, and whether it might instead be better to adopt more casual attire – either because such attire makes it easier to connect with clients, or because some very experienced and successful advisors have adopted such wardrobes, seemingly with no negative impact on their success. But the reality is, just because a more casual style may work for seasoned and successful advisors, does not mean that it will work for all advisors.
In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – explores the concept of “countersignaling” and what the research shows are the implications it may have for the decision to dress down – particularly amongst younger and newer advisors.
In economics, signaling refers to the ways in which we try to convey information to another party under conditions in which credible communication is difficult. For instance, when meeting with a prospective client, financial advisors may need to engage in certain forms of signaling in order to demonstrate their competency (e.g., becoming a CFP professional), since all advisors trying to win over a prospect would have an incentive to claim they are competent, regardless of their true level of knowledge. By contrast, countersignaling is a strategy which refers to ways in which we may try and demonstrate an even higher level of status by not signaling (e.g., a mid-level student may eagerly attempt to answer an easy question in class, while a high-level student may not, as a signal that their knowledge surpasses the point at which they would take pride in answering such a question).
In an attempt to explain such countersignaling behavior, prior research has used game theory to demonstrate why signaling can be an effective strategy for mid-level individuals with regard to some characteristic (to demonstrate they are not low-level, and to hopefully be perceived as high-level), while countersignaling may actually be more effective for high-level individuals (as they are unlikely to be mistaken as low-level, and signaling could actually give the perception they are mid-level). And this dynamic may have direct implications for the decision to dress down as a financial advisor, as it could be the case that dressing down actually increases the status of an experienced and successful advisor, while dressing down might decrease the perceived status of a young and inexperienced advisor.
Of course, this doesn’t mean that it isn’t still wise to consider other factors, such as a particular client niche (and their typical dress/attire), when deciding whether or not to dress down. But given that many people prefer to not dress up, advisors – and particularly those who are young and inexperienced – should be careful not to skip out on opportunities to signal credibility to prospective clients, and be especially cognizant of the fact that just because seasoned advisors can dress down successfully, does not mean that young and inexperienced advisors can, too!