If there’s one thing virtually every financial advisor can relate to, it’s the outreach from a panicked client who has seen or heard some sensationalized story about how the economy or market is in imminent danger of collapse and is seeking reassurance that their life savings will be okay… and may even be asking if it would be better for them to simply sell everything and put their money in cash or CDs. Or instead, it’s the angry client who calls and wants to know (immediately!) why their portfolio has declined, despite frequent (and recent) discussions the financial advisor has had with them about inevitable market fluctuations.
Yet while it’s easy for advisors to get frustrated (especially after having the exact same conversation, sometimes with the exact same client, multiple times), it’s not always as easy to remember that clients are human beings, and as such, will naturally experience fear over losing what they hold dear. And for many clients, it isn’t just about losing portfolio assets themselves that is upsetting; rather, for many clients, it’s what that accumulated wealth that they have entrusted you to manage actually represents: a lifetime of hard work, and the ultimate means to achieving their future goals and dreams, that they may fear is evaporating away right before their eyes.
In our 17th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about the importance (and challenges) of responding with empathy to clients who are upset or afraid. Because even though research in behavioral finance has helped us better understand the natural human proclivity to make irrational decisions, especially in times of stress and fear, the objectivity with which these paradigms have been created has perhaps unwittingly made it too easy for advisors to judge their clients for their impulsiveness, and subsequently become dismissive of what are normal and understandable reactions to stress. And while it is an advisor’s job to help their clients make good decisions, the real challenge is figuring out how to do so with kindness and empathy, and without behaving smugly with a sometimes-hard-to-resist “I told you so” attitude.
Instead, the insight that behavioral finance has provided to advisors can be used to offer an empathetic response to an upset client in a truly genuine manner. Because when that advisor takes a moment to tell the client, “I understand why you’re upset,” they are doing so from a place of intellectual understanding, and are in the optimal position of helping the client down from the ‘branches’ of irrational ideas and emotional obfuscation, and back to the ‘roots’ of their financial plan’s basic objectives… which are based on the client’s core values and long-term goals. And by deliberately pausing for a moment after offering an initial empathetic response, an advisor can give the client a chance to shift gears and, if necessary, to calm down, which helps set the stage for the ensuing conversation.
Ultimately, the key point is that, when a financial advisor responds with empathy to a panicked or angry client, they are strengthening that relationship, building trust, and becoming more effective at their jobs. Because, at the end of the day, empathetic communication is simply an effective tool to connect people to each other’s humanity, facilitating conversations around highly personal values, points of view, and priorities, all of which make it easier to understand the ‘why’ behind a client’s goals and objectives, and how to stay on track to achieve them through the vicissitudes of market volatility.