After the past few years of financial turmoil, shattered confidence and anxiety about the future, many investors are understandably in shock. Advisors describe the resulting behavior in different ways—clients are “paralyzed,” “stuck,” look like “deer in the headlights”—but it comes down to an inability to make rational decisions.
To address this situation, I decided to ask a couple of other experts to add their perspectives to mine as a psychotherapist and coach. I first consulted Susan Bradley, a CFP and founder of The Sudden Money Institute in Palm Beach Gardens, Fla., who has spent the past 11 years researching the strong emotional responses of people in transition and who now helps financial planners develop expertise in dealing with these kinds of changes.
My second interviewee was Liz Davidson, founder and CEO of Financial Finesse in El Segundo, Calif., a company that provides financial education as an employee benefit in more than 400 large- and medium-size organizations. Here’s how Bradley, Davidson and I would advise you to proceed with some examples of client paralysis.
Q: Despite the market recovery, a couple I work with haven’t regained their appetite for investing. I’ve counseled them on how much growth can be missed by being out of the market during a rebound, but it hasn’t made any difference. How can I reach them more effectively?
A: Susan Bradley told me about a planner who moved a client from paralysis to action using her Sudden Money protocol. After taking all his money out of the market in early 2008, this client was proud that he hadn’t lost a dime. The advisor working with him said, “Well, I can’t guarantee that you will never lose a dime in the future, but I can help you meet more of your goals.” He suggested that the client divide his money into “purpose allocations.” Absolute safety would be just one of these purposes. The money in that particular category might not even keep pace with inflation, but the client could be sure he wouldn’t lose any of it.
The second purpose was to stay ahead of inflation and taxes while providing liquidity and support as needed. This portfolio was a blend of bonds. The third purpose, long-term growth to build an estate that could be passed on to the client’s children, was implemented through higher risk/reward investments.
A key part of getting the client to buy into this triple-strength strategy was a visual depiction that transformed it into clear, actionable decisions. “People can get lost in a complicated discussion, but they don’t raise their hand and say, ‘I’m lost,’” Bradley says. “Successful advisors are usually very good at building relationships, but when clients freeze, they’re not as easy to communicate with. You need to communicate in a way that uses their preferred mode or modes of learning and accessing information.”
Q: I’ve always enjoyed working with a client who began investing in the early ’90s. Although she held on through downturns with confidence that the market would come back, she seems to have lost heart since the recent crash. I have been told to do as I think best with her portfolio. I’m glad she trusts me, but I don’t think this apathetic attitude is healthy. Do you think it’s just temporary? Should I do something about it?
A: Whether her desire to surrender total decision-making authority to you is temporary or long-term, I would suggest that you find a creative and sensitive way to keep her in the loop. In Susan Bradley’s words, this client is basically caving or hibernating. She needs to stay connected for the sake of her future well-being.
First, I would listen to and empathize with her sense of emotional exhaustion. Let her know you understand why she wants you to take over managing her portfolio. Then tell her what parts of the decision-making process you will be happy to handle, and what parts still need her involvement in order for you to feel that you are serving her with integrity and objectivity.
Bradley also suggests bringing her out of her “hibernation” state in increments. Keep educating your client about her investments in ways she can tolerate. Since many women learn best in collaborative environments, you might even consider inviting all your women clients to a talk on dealing with the overwhelming shock and turmoil of the past few years.
Q: A client of mine who is selling his business has voiced an interest in investing the bulk of the proceeds in gold. I think this is a terrible idea, but how can I talk to him about it in a way that’s effective?
A: I believe you need to make more time to find out what’s going on with this client. What thought processes and feelings are leading him to what you believe is a disastrous course of action?
Liz Davidson shared with me her experience with a financial helpline that her company, Financial Finesse, makes available to callers with investment and other financial questions. “If you listen long enough and ask the right questions,” she says, “sometimes the caller will talk himself out of a bad idea.” In this case, if you ask your client what made him decide to put most of his money in gold, he might say, “A friend of mine suggested it.” Then you could ask, “Does your friend know a lot about investing?” If he says, “Well, not that much,” he may start to realize that his impulses are not very grounded.
Once you’ve heard your client fully, you can propose revisiting his strategy to see if the asset allocation you’ve recommended is likely to meet his goals. You may need to tweak his allocation, but if you listen and respond calmly to an idea that may have made you apoplectic at first, there’s a good chance you can help him return to a more rational state of mind and make better investment decisions.
Q: I tried to persuade a client of mine to return to the stock market months ago. He didn’t listen to me then, but now he’s angry that I didn’t push him harder to jump back in before the market recovered. What can I say to restore our good relationship?
A: First, go through whatever process works for you to defuse your feelings of being attacked and on the defensive. For example, reread the notes you took when you urged your client to get back in the market.
The next time you meet with him, empathize with his frustration about the gains he missed. If your clients don’t feel heard when they are emotionally upset, they won’t hear what you have to say and your relationship with them might never fully recover.
Once your client has had a chance to vent and is ready to move into the listening and problem-solving mode, take the opportunity to discuss what happened and ways a similar situation can be prevented in the future.
Liz Davidson adds, “If you didn’t push him very hard to reinvest, you can say, ‘I know we talked about it, but I don’t think I pushed hard enough. Are you comfortable with me pushing you harder in the future? If so, I’ll make sure to be much more emphatic when I think there are important decisions you need to make with your portfolio.’”
Why the gentle approach? Davidson says it’s all about psychology. Confronting your client will make him want to fight or flee, neither of which is a good outcome. By subtly reminding him that you did recommend he reinvest, you will reinforce your expertise and shift responsibility back onto him in a non-challenging way.
If you aren’t comfortable pushing a client harder than you pushed this fellow, I would slightly amend Davidson’s advice and suggest that you say, “I did encourage you to get back into the market, but sadly, I couldn’t reassure you convincingly enough. We both regret it now. What do you think I could have done differently?”
When financial trauma leaves your clients paralyzed, apathetic and depressed, or with cockamamie financial ideas, take time to slow down, listen to them fully and with compassion and sensitivity, then patiently educate (or remind) them about the fundamentals of prudent investing.
Each one of us has a process we go through to return from our stress mode to our thriving mode—to escape our lizard brains. Before dealing with your clients’ irrationalities, practice realigning yourself. Your calm, centered state will encourage them to trust you and feel reassured as you help them move toward more balanced thinking and feeling, and ultimately to action.