Conquering Your Clients’ Financial Fears

Conquering Your Clients' Financial FearsOne of the most powerful emotions we all experience is fear. When it comes to our finances, fear can drive us to make decisions we later regret. More often, fear leads to decision paralysis when we retreat to the comfort of indecision or simply bury our heads in the sand.

To many people, their financial future is a threat to their well-being – the fear of not being able to retire, the possibility of losing one’s job, or being forced into early retirement. These are all financial threats that breed the worst kind of fear. Many people cope with them by doing everything they can to avoid them. That can be a lot easier than facing their fears, especially if they lack confidence in solving the problem.

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The media is not your clients’ friend

One of the primary drivers of fear, especially in the financial realm, is the media. The media, which needs to sell advertising to stay in business, must make its information more essential if it is going to be consumed. The surest way to make information more essential is to ensure that it stokes emotions and, the strongest emotion when it comes to finances is fear. In the media, headlines sell, and fear-inducing headlines sell much more than happy headlines.

Digitally wired investors have the capacity to consume a constant flow of information while limiting their sources to those they choose to believe. They curate their news consumption by choosing which stories or news outlets to believe. This leads to “confirmation bias,” which often leads to decision-making based on emotions instead of hard data. If clients feel the stock market is due for a correction, they can consume as much bad news as they need to confirm their bias, triggering an emotional response.

Unquestionably, we all benefit from greater access to information. However, for most clients, trying to keep up with the news and events of the day can be like drinking from a firehose. No matter our capacity to gulp gallons of water, we ultimately reach a point where the constant volume of water overcomes us.

The media’s job is to pump out as much information as possible, but your clients don’t have to drink from the hose, especially when they realize that the sources of information don’t really have their best interests in mind.

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Get your clients to focus on what’s knowable

To counter the media’s fearmongering, financial advisors need to proactively insert themselves into the consciousness of their clients. Fear is just a mindset brought about by a feeling of helplessness or not being in control. By communicating to your clients that, working as a team, they are not helpless and have more control over their future than they realize, you can help them conquer their fears.

Warren Buffet once said, “I don’t think about the macro stuff, only what’s important and knowable. If it’s unknowable, it’s unimportant, so you forget about it.” Fear is all about not knowing what the future holds. Many things could come along and impact our lives. They could be very important, such as another COVID lockdown, a new, more dangerous variant, or something else that could shake our economy and our lives. But they’re not knowable. Buffet’s advice is to only focus on what’s important and knowable. To do otherwise is a waste of time.

Your clients can hope they know what’s coming and build a strategy based on that, but hope is not a strategy.

What do your clients know?

This is where you, as the financial advisor, come in. If you’ve done your job right, your clients know a lot more than they probably realize.

For example, they know how much they’re saving and investing towards retirement. They know how much money they’re making and what they have available to save towards their goals. They know their time horizon, and based on your regular client updates, they know their year-to-year progress and what they need to earn on their investments to achieve their goals. You adjust the strategy based on what you know.

They also know you are right there with them to reassure them they’re on the right track and that, if things get chaotic, you help them make the proper adjustments to their plan to keep them on track. Reaching their target is what’s important, not how the stock market will perform next year.

Getting your clients to focus on what they know can have a much more positive impact on their lives than if they were to simply wring their hands over the unknowable.

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Key steps to helping your clients conquer their fears

Discourage them from overconsuming media, reminding them that they get it wrong more than half the time.

Become a reliable source of their information. Create a communications strategy that includes weekly email updates on the markets and the economy. Offer client education workshops. Check-in with your clients often to remind them you are there for them.

Discourage them from checking their accounts too frequently. The unpredictable, short-term fluctuations of the market concern people, but they have little if anything to do with their long-term investment performance.

Don’t be too quick to pontificate. Most clients just want to be heard. When clients feel listened to, they feel freer to discuss what’s causing their anxiety. That makes it easier to have a rational conversation about what really matters to their specific situation.

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