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Financial Planning

How to help clients avoid emotional decisions

We enlist emotions and feelings to make any number of decisions on a daily basis: What will I eat for lunch? What should I name my new dog? Which sports team am I rooting for tonight? Emotions are always hovering somewhere in the decision-making process, even if it's not immediately obvious which emotions we're channeling.

When it comes to financial decisions, emotions can cloud people's judgment. You have likely seen this with your clients. Ultimately, decisions made purely from an emotional place can wind up doing customers a disservice. For example, when clients are fearful about the market, they tend to behave in reactionary ways. Other emotions, such as regret, jealousy and anger, can also affect judgment.

Here are four strategies you can use to help clients navigate their emotions when they are setting goals or contemplating financial decisions.

1. Look out for red flags

When talking with clients, notice both the tone and the language they're using. Specifically, notice phrases like:

  • “I'm worried that ..."
  • “I'm nervous about ..."
  • “I'm angry because ..."
  • “I feel really bad that I ..."

When you hear these kinds of statements, instead of trying to talk clients out of their emotions, probe them by saying, “Tell me more." It may feel like you're heading in the wrong direction because the conversation may get more emotional before it gets more rational. However, if you dismiss their emotions or try to counter them with logic, your client may just double down on their emotions or feel unheard.

Bottom line: Sometimes you need to elicit more emotion first, to really understand the root of what a client is feeling.

2. Know your client's money story

While you're not a therapist, you are a trusted advisor and have the chance to act as a kind of financial coach. One tool in the financial coaching toolbox is helping a client uncover their money story. A client's money story is the underlying script they have about money that they carry around with them and use as a lens to make sense of events. Money stories include narratives like, “I never win," or, “Every time something good happens with money, it's followed by something bad."

To help a client be more aware of their own money story, ask open-ended questions about their earliest or most significant memories of money or how they think money has shaped key events in their life. Listen for patterns.

3. Explain common emotional biases

We all have biases that affect how we think and act. While the knowledge of a bias doesn't make it go away, it can help someone get a clearer picture of what is motivating their decisions.

If you haven't already, explain these biases to your clients and how they might relate to potential financial decisions they are considering.

  • Loss aversion: Loss aversion bias explains why the pain of losing money feels greater than the pleasure of gaining that same amount of money, i.e., people would choose to avoid losing $50 over finding $50.
  • Pessimism bias: The pessimism bias is our tendency to overestimate how likely it is that something bad will happen, while underestimating the likelihood of something good happening.
  • Regret aversion: We're displaying regret aversion when we make decisions in order to avoid feeling regret in the future.

4. Understand your client's emotional profile

Do you know the emotional profile of your client? As the CFA Institute has reported, there are personality assessments some financial professionals use to understand how clients react to anxiety and stress, such as White and Koonce's hero types from their book, "Working with the Emotional Investor: Financial Psychology for Wealth Managers." These types of assessments can help you design solutions that better protect clients from making bad decisions based on triggers they have.

In addition to creating or using assessments to help understand clients, you might also consider putting some rules and policies in place that make emotional decision-making less likely. For example, you could institute a policy that changes require a certain amount of notice. While you want to offer the best client service possible, adding some guardrails may ultimately serve your clients better than immediate responses.

Consider having a proactive conversation with your client about how they typically make decisions about their finances. Listen for red flags, understand their money story, explain possible biases and assess their personality. Use this as an opportunity to build trust. Your clients will feel confident and understood, and you will be better prepared to help them navigate the unexpected.

Ready to have a conversation with your client? Learn how to be a better listener and how it can help your business.


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