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.
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
Kitces & Carl Video Transcript
Michael: Greetings, Carl.
Carl: Michael...what’s your middle name?
Carl: Michael Ernest Kitces, let’s get after it.
Michael: Wow. I haven’t gotten that since I was probably in trouble for something like thirty-five years ago.
Carl: I know. “David Carl Richards III!” That’s the voice I hear in my head.
Michael: Wow. It’s very shrill. That was very targeted.
Carl: “David Carl Richards III!” That’s my mom.
Michael: Ooh. So speaking of being shrill with people, we kicked off our last podcast episode with a tweet you lobbed out to the world, so I want to kick off today’s with another one.
Michael: Because I know you have this occasional tendency to say things for the sake of just being provocative. Well, to be fair, sometimes you say it to be provocative, and sometimes you say it because you really mean it. And I can’t always tell, in a good way, which is which. So you lobbed another one of these out there that I want to talk about today.
Carl: Let’s do it. It sounds great.
Michael: So this was actually I think a month or two ago. I can’t remember quite when it blew by on the Twitter feed. But the comment you made, I guess that was directed more out to consumers directly, was, “If you’re scared about the markets, call your advisor. If your advisor makes you feel dumb for being scared, find a new one.” Just kind of speaking to consumers, and simultaneously being very in-your-face to advisors. So let me even just ask, where are you going with this one?
Why Behavioral Finance Research Can Complicate Our Conversations with Clients [02:57]
Carl: Yeah, I was really frustrated with this. You see it show up in a lot of places. It feels to me like we’re developing a little bit of a smugness as we learn about behavioral finance, which is really good, right? We’ve got a whole bunch of people doing amazing work. Daniel Crosby is one of my favorites. I’m quoting his book; he’s doing amazing work around the importance of behavior. As we learn more about this, we’ve got to just be careful of this little tendency, because I certainly have it and have to check it, to be like, “Oh, look at those dumb little humans making their dumb little mistakes.” Right? And the people we’re pointing at are our prospective or current clients.
And I know we would never say it that way. Not anybody listening to this would. Some people in the industry might, but we would never mean it that way. But there can be this little smugness that creeps in when we’re sort of like, “Oh, look how smart I am. I know all about behavioral finance.” And we forget, that’s just humans acting like humans act. And by the way, I don’t know what my blind spots are, but I know I have them. So that’s where it came from. What I was really trying to get at is, hey, let’s insert a little humanity, and mainly empathy, into how we treat our fellow humans whom we happen to call clients when they get nervous about money.
Michael: I have to admit, I think you have a real point around this, and... You don’t have to look surprised!
Carl: I was like, “Yeah. Yeah. Did you just say that?” Like, toot that!
Michael: For those who are just listening to the podcast, he actually had a look of surprise on his face when I said I agreed with him.
Carl: Put that on the toot machine, which is what I call Twitter.
Michael: I think part of the problem, frankly, is that we’re kind of trained this way. And frankly, I think, although I love the research itself, I actually feel like all the research we’re doing in behavioral finance is making this problem worse. Because the way we frame it in the world of behavioral finance right now is, human beings have all these behavioral biases that we’re here to solve, to correct, to keep them from doing. Which is almost literally, what we’re teaching is, your clients are biased and dumb, and your job is to make them not do dumb things. Sometimes we literally say like, “My job is to keep you from doing dumb things.” You can’t more directly set up the implied judgment that what your clients are doing is dumb, and start turning that into a power dynamic or a belittling thing. And granted, we haven’t been through an extended bear market for a long time, but as I think back to prior bear market cycles, I think reflecting back on myself even, when you’re going through one of those tough market scenarios and you’re having the 17th conversation with a client this week about the same scary thing that happened, and it’s the same conversation and the same aggravating stuff and you’re trying to make the same talking points to get them back to dial down and not be so freaked out, I think it’s hard to have that conversation over and over again with clients and not get to a point of like, “Oh, my God, this is aggravating, this is dumb.” Like, “Oh, why can’t they just see.”
Carl: Like, “Seriously? Seriously, another one?” Yeah. And I think this would be a good place for us, for me, at least, to feel like, look, I want to insert a little empathy here for the people who are watching, I get it, right? That description, for the 17th time, like, “Don’t you trust me? We’ve had this conversation. Go back to knitting or riding your bike. I got this.” Those feelings, those are all natural too. The natural tendency for us as we learn about behavioral finance stuff is to want to point it out; that’s a natural tendency. I think we just have to spend a little more time everywhere understanding what we’re doing. Like something as simple as what you’re requiring of somebody when they come in as a prospective client and they’ve got a portfolio. They think it’s a portfolio, but you know it’s a smorgasbord, right? A collection of investments. They think it’s a portfolio. Every one of those, every single line item on that statement, somebody made a decision.
Particularly if you’re dealing with a couple, where there may be some blame or shame around the decisions that were made, and you’re going to go in and say, “I’m going to summarily sort of execute all of those decisions by selling it and putting in this new portfolio.” Even there, I’m finding myself saying this a lot lately, like, “I get it.” And that’s how an advisor can handle it, is saying, “Hey, I want you to know something.” I even have...I have a sketch that says “Your Advisor” in the middle, “The Big Mistake” on one side, and on the other side is “You,” the client. And I’ve written that. One of your jobs is to be the thing between “You” (your clients) and “The Big Mistake”. So we do this. We get it. We get it.
How To Show Empathy To Scared Clients [09:15]
I think the language around it needs to just simply be one of empathy. And we can only do this if it’s true. Because that’s another rule of real financial advisors, we only say things that are true. But I’ve just found a little statement, just pause.
So here’s how I’d handle that. Client calls, 17th call around scary, whatever.
Michael: “Oh, my God, the thing, the CNBC News, the headline, ‘The market is down 3% today.’ It was down 7% last week. Oh, my God, the world is ending. Carl, save me.”
Carl: Yeah. And it sounds awful...
Michael: Actually, now it’s probably more like, “Carl, it’s your fault. I gave you my money and it’s down 10% in 2 weeks.”
Carl: That was almost a perfect reenactment, right? That’s how it can sound. They may even say that, but that’s how it sounds. I think we just need to learn to take a big pause and understand; I think there are three steps to this, but let’s just cover one and two. Number one is, absorb with empathy. Right? I call this the scary markets conversation, but it can happen with happy markets, it can happen with cash flow, whatever, it’s the client being scared. We’re using the example here, of market activity, the financial pornography network yelling at people, the circus clown saying, “Buy, buy, sell, sell.” They’re all calling you for the 17th time.
Michael just gave us some great roleplay. I would just take a deep breath and say, “Hey, Michael, I understand. In fact...” And this was the line I always used, “In fact, if I watch the news and focus on it for very long, I can feel that way too.”
And you’re only allowed to say that if it’s true. But for most of us, I think that is a reasonable thing to say, “If I focus, I get scared too.” Right? Just absorb with empathy. It’s your job. I used to get mad about this and sarcastic and a little frustrated, right?
Michael: But particularly because it’s the first conversation from them to me, it’s the 17th conversation from me to a freaked out client, right? The repetition piece from our end, I find, makes it harder because the conversation gets really old, really fast. And it’s just the same pattern of the same thing, freaking about the same stuff in the same way. It gets frustrating, like, “For Christ’s sake, I told you not to worry about this thing. We’ve had this conversation repeatedly. We do it like once or twice a year,” like, “Argh.”
Carl: Yeah, I get it. And here’s what I think, I just hope that we can do this, right? There’s that wonderful space that Viktor Frankl talked about, the space between stimulus and the response. And I’m just hoping we can find a little bit of that space for people and realize that you’ve kind of got to gird yourself for it, and prepare for it. After the third call, you may have to just go, “Okay, man, I’ve got to be ready for this.” And I think we use that space to allow people to feel heard. They don’t really actually want you to solve the problem, they just want a hug. And I know they’re not saying that, but they just want somebody to listen. I think if we can just use that space to be empathetic and realize they’ve been thinking about this for hours, if not days, before they called you. They know what you’re going to say. And they know they’re going to be in a little bit of ‘trouble’.
I used to have this client, her name was Martha. She would call every month with something she was scared about. And by the six or seventh month, I got a little frustrated. And then by the eighth month, I realized what a blessing it is that she has someone to call, and what a sacred opportunity it is, a sacred trust that I’m the one she calls. And it turns out that she pays me for that, to be the release valve for other people’s anxiety. And so I think if we can just pause – that’s the tweet, right? – if we can just pause and be empathetic and say, “Hey, I get it. I understand why you feel that way. When I watch the news right now, I get nervous too.”
And then there’s a whole series of conversations, right? We don’t have time to go into now, but what we want to do is get them out of the branches. Because they’re calling about the market, the economy, and/or a product, right? They’re pointing in a specific investment vehicle in the account that you manage for them saying, “Look at that thing.” We want to take them out of that and pull them back to the roots, which is the why, the reason they’re planning, their goals, right?
I just think the important part here is to say, “We hear you, I hear you. I’m here for you anytime you need a hug, because it’s 17 times. Call Michael or I, he’ll give you a hug, too.” We know it. But could we just infuse the world with a little more empathy for the human on the other side of that phone call that’s so worried? They’re so worried that they had the guts to pick up the phone and call you, because they know what you’re going to tell them. They’re that worried. And they just want a hug, and they want you to remind them of the rationality of the plan you built. But we can’t just throw rationality at them, right? Because now they’re irrational. What do you want when you’re feeling irrational? You just want empathy. So beautiful.
Mining For The Reasons That Drive Clients’ Fears Helps Advisors Connect To Their Clients’ Humanity [14:46]
Michael: The other thing this reminds me of in this theme of having more empathy and just trying to better understand where they actually are mentally, in potentially freaking out about markets; this was driven home for me early on by a client we were actually working with all the way back in like the 2000, 2002 market decline, who I’ll say is...I was going to make up a name for her, but I think I can actually just call her Rachel, because that was her name, and it was 17 years ago, so she probably won’t be listening to this. Rachel had an $800,000 portfolio. It was down about 15% that year, so she was down like $120,000. And I remember the number because I think the maximum contribution limit at the time on 401K plans was right at $12,000, and basically, she had lost 10X her annual contribution.
And so the problem cropped up that I didn’t realize until the conversation unfolded; I was sitting second chair at the time, so this was good because I couldn’t have unpacked this. She was really freaked out about the market decline, and what it eventually came down to was not even, “I lost 15%.” It wasn’t even that “I lost $120,000.” It was, “I lost the last 10 years of all of my hard work and saving.” Right? She kind of disassociated what frankly had been a monstrous amount of growth she had in the late ‘90s as the portfolio ran out, because she’d been with the firm for a while. And her experience in the market decline was not a percentage loss, it was not a dollar loss – it was, “Everything I’ve worked to save for 10 years just vanished.” And that’s what was freaking her out, because she was now projecting forward. “I’m going to have to work 10 more years until I’m 70-something to make up for what I’ve lost.” Which was not entirely even connected to her actual retirement projection reality. It just really struck me that it wasn’t the market decline for her, directly. She translated that, without any conversation, into 10 years of trying to live frugally and get raises and be a good saver. She felt like she watched 10 years of hard, frugal living go up in smoke. And that was what actually set her off.
And it was only a conversation we got to because of the advisor. I wish I could remember exactly what he said now; he had a more delicate way of putting it, but it was essentially something to the effect of, “It seems like you’re even more upset about this than just the decline itself. I understand, you’ve lost a significant amount of money, but the portfolio has also gone up a lot more this not so many years ago. Why is this hitting you so hard?” Right? And obviously, you have to be careful about how you say that, that you don’t just belittle their feelings like, “Why are you freaking out on me?” He had a good way of putting it, but he kind of highlighted this like, “It seems like your reaction to this is even stronger than just the amount of money you lost. Is there something else going on here?” And that was how we eventually got to this, “I’ve just watched 10 years of trying to live frugally all go up in smoke” that had set her off.
It was a striking thing to me, that sometimes we don’t even realize what clients are anchoring to, what lens through which they’re viewing a market decline. You can’t always assume they’re looking at the portfolio decline from A to B, and that the only way to get to the underlying meaning is to acknowledge and lean in and not to say, “Hey, you need to take it down, you’re really upset,” but he went the opposite direction, and leaned into it like, “You are really upset. I can see that you’re so upset. Just help me understand why this is so upsetting to you.” And that was how the conversation came forward.
Carl: Listen, that’s such a beautiful example. Because I think what happens a lot with us advisors, and we may not recognize it as this, but we feel like maybe there’s a little bit of a threat. Like it’s your fault, and therefore, I don’t mean we can come across as defensive, but I almost mean we need to defend ourselves, like you would in a debate. We need to defend what’s going on. You even pointed out that it wasn’t necessarily tied to her projections in this. There are plenty of places where you could quickly have gone to be defensive about the advice that you’d given, and I think that’s kind of what we feel, but I think that’s being rational and reasonable and throwing facts and figures at somebody. First, you can say, “Wow.” Right? Like, “Help me understand, this has really got you worried and upset.” There’s almost always a reason behind the reason.
The way you just described that, how can you not feel humanity there? Like, “Of course, you’re worried. I get it now. I’m sorry. That’s been tough.” Right? Like, “When I look at stuff like that...in fact, even right now I can feel it.” Right? And then we can circle back to, “Thanks for sharing that with me. Thanks for trusting me, frankly, enough to have this conversation.” Right? And so that’s the hug.
Then of course, we can carefully circle back (which we should talk about in another episode when we have time, because it’d be way too long here and it would be triple what we’ve already spent) and ask, “Okay, from here, where?” Because remember, when somebody is feeling irrational (and I don’t mean that pain and fear is irrational, but if you want to blow out of a well-designed portfolio because of market volatility, it’s probably an irrational decision) the last thing you want – and you can try this with a teenager, just try it – the last thing you want is somebody to reason with you.
Setting Up For Empathetic Conversations With Agitated Clients [22:37]
Michael: So as we wrap, we’ll think about diving into this in a future episode, as you put it, “What’s the whole conversation to get them out of the branches to try to talk them back down?” But, to wrap up, I would love to hear just a little bit more from you on how you try to set up this conversation? What’s the first empathy statement, or empathy line, that just starts down this path? Because I think you’re right, my gut response is either A, I need to defend myself, because if I acknowledge they’re losing money, I’m going to invite them to sue me; or B, let me pull out my chart book with 17 facts and figures about why this is not so bad, right? Those are my go-to responses, I think for a lot of us. So what’s the first thing I should be trying to say? What’s the first conversation? What’s the first empathy moment I should be trying to create if I’m going to not fall into my usual bad habit of what I would otherwise do with my chart books or my defend-myself thing?
Carl: Yeah. And that’s what we all do. That’s what I do. It’s just natural, right? I think what we want to try and do is just remember what it feels to be human and just simply say, “Michael, it sounds like it’s been tough. I want you to know like...” And only if this is true, again, right?
Michael: And when they say, “You’re damn straight, it’s tough. I’m down $100,000.”
Carl: Yeah, yeah. Yeah. It doesn’t have to be a long moment. The moment you described could have been a longer thing. Like, “Tell me a little bit about what’s going on, I understand why you’re worried, but there seems to be something more here. Can we talk about it?” That could be a longer one, but now you’re pointing to the businesswoman or businessman that calls and says, “Yeah, damn straight, I’m down $100,000.” That could be a shorter moment. It could simply be, “Yeah, I get it, man.” A little bit more direct, a little bit more drill sergeant-like, “I get it. When I turn on the news right now, it’s scary. So let’s talk about it a bit. Tell me what has you worried.” “Well, the economy, the market. I saw Jim Cramer yelling, and the circus clown, and duh, duh, duh.” And you get a little, “Okay, got it, got it.”
And then you use, which we’ll get into more, step number two. Step one is absorb with empathy. Step number two is use the police hold method. You’ve got to use the police hold method. So right there, especially with businessmen and businesswomen, “Yeah, yeah, I’m down!” “I got it, man. I totally got it. I understand, it’s scary right now. And especially if you’re watching the news, which we all do. We live in D.C., obviously, we watch the news. I get it, you’re nervous. Can you give me a second? I want to run and grab your file.” That is the ultimate ninja trick. And we’re going to have to get into it in another call. But what you’re doing is just trying to create a little bit of space.
They made the tough phone call. They’re in full flight or fight. They’ve done the hardest part, which was pick up the phone and call you. You have, boom, taken a punch to the face, and you just need to regroup. “Can I get your file?” And what you’re doing is you’re...I know, your cute, little computer has already pulled up all their contacts, but you still say, “Please hold.” You can do it in person. They came in, you didn’t expect it. They punched you in the face with the market. You can say, “Oh, I wasn’t prepared. I understand why you’re concerned. Let me go grab some notes that I left in the...” Just get yourself 30 seconds, give them 30 seconds. That’s all it takes, and then come back. And then when we come back, we’re going to say, “Okay, got it. I understand, you’re worried. But before we get into that, let’s just really quickly back up. I want to just check on a few things. When we first met, you told me...” Right? And we go into like values, goals, we reconfirm all those things, and then we build the portfolio based on that, and then we get into the longer conversation. So it’s just, absorb with empathy, create a little space, and reconnect to why.
Michael: I love it. I love it.
Carl: So good.
Michael: I will try it the next time our inevitable bear market comes. Because we’re 11 years into a bull market, so it’s only a matter of time now.
Carl: Yeah. The police hold method. Okay, Michael.
Michael: Awesome. Well, thank you, Carl.
Carl: Thank you. We’ll talk soon.