Written by Meghaan Lurtz, Ph.D.
Clients will inevitably face a crisis. This could be a market event or a personal event. Maybe it is a combination of the two. Thus, crisis management skills are crucial for financial advisors.
How does this work in a financial advisory setting? A critical first step is to calm the client.
One method to do this is referred to as “labeling.” “Labeling” is when you identify someone’s feelings by using statements like: “It sounds like you are feeling…,” or “I am noticing X in your voice…,” or “It seems to me…,” or “It looks to me…”
Questions about emotions connect people and also soothe them. These types of questions help people feel more present and heard, which starts to slow their racing minds. Consider the following exchange:
Client: “This market swing is really, really tough. I want to get out of the market. I am just not sure I can stomach any more loss.”
It might feel natural for an advisor to respond to the client with advice and a reminder about portfolio construction. And certainly that’s essential during a crisis.
However, in those early moments, clients cannot listen to advice no matter how great it is. They are scared and likely flooded with emotion. In this state, people don’t hear advice clearly. The advisor could respond this way:
Advisor: “Thank you for coming in. I am hearing a lot of anxiety in your voice. Tell me more about how you are feeling.”
The advisor is trying to learn more about what the client is feeling. It might be anxiety, but it might be fear. It is important to ask for clarification and to allow the client to name their emotion and explain it. Consider the following response:
Client: “Yes. I am stressed. I am really stressed. I keep telling myself that I have a well-balanced portfolio. I tell myself that I made it through the housing crash. But this feels different. This feels much more uncertain.”
The client has indicated that they are already aware of the “advice” as it pertains to their portfolio, and yet they continue to say that something is bothering them. At this moment, it wouldn’t have been helpful to start with advice because it would have been received negatively and might have been perceived as being dismissive. However, leading with emotion and inquiring about the situation, the client and the advisor are connecting and building trust, which will be important when advice is ultimately dispensed.
The advisor might ask how they have been handling the stress, which may help to craft more useful directives. Again, the goal here is to get the client to calm down and make sure that they feel heard.
Advisor: “I hear you when you say this feels much more uncertain. Tell me, what is making it feel uncertain? Tell me a bit more about what you have been reading or watching that has led to this conclusion and brought about these emotions.”
The advisor needs to know what they are up against. For instance, has the client been watching financial news on repeat or following a fear-mongering person on social media? Regardless of the answer, the advisor needs to know how the client is making decisions and to understand what the client sees as valuable or not about their current process.
Before recommendations are made, another useful line of questions pertains to helping the client shift perspectives. Part of the fear people have, or the frustration they have with their fear, is that it feels debilitating. Asking questions provides the client with an opportunity to solve their own problems.
Advisor: “I am so glad you are here and sharing what has been going on for you, so we can work out a plan moving forward. If I may, before we get to any planning, I want to ask you sort of an odd question. I want to ask you, if your best friend called you and was describing what you are describing, what would you tell them?”
This question puts the client in the driver’s seat. It forces them to see their question through the eyes of the advice giver, the person in control, instead of the advice needer, the person feeling out of control. This small shift can be tremendously powerful. When the client answers, the advisor will also have greater understanding of the advice she or he may need to give (or not give) by letting the client talk about the advice that they need.
Client: “Yeah, that is a bit of an odd question. But you know, this is basically what I have been doing. At work, just today, my coworker asked me what to do. I said to stop listening to the news and told them to call their advisor.”
At this point, the financial advisor can offer advice. The guidance will be heard and will actually reflect what the client is experiencing. The picture is fuller.
Advisor: “This is great advice. Tell me, do you think that spending less time listening to the news is helpful for you?”
Client: ”Yes. I know. I know. I will turn it off. I can do that. Yes.”
Advisor: “Okay, and I know you know that your portfolio is built for this even though it feels awful. So let me ask you this: You are also talking to me, which is the advice you gave, so what do you want to talk about? We know we can’t control the market, and you are not going to control the news. But you have controlled being here today. So what else can we do in this meeting to help you feel more in control?”
Client: “I guess I want to know I am going to be okay. Can we talk about a plan B? Like what if things stay bad for a while?”
Having a plan B is an integral tool that advisors can use to help clients in times of crisis. This can be a mix of running a Monte Carlo analysis with half of the portfolio and talking about going back to work or how to curb spending. Regardless of the solutions generated, taking the time to make an alternative plan is a final way to empower the client.
Crisis is inevitable. The knee-jerk reaction is often to offer advice, but no one actually wants advice when they are melting down. Advisors should ask clients questions about their emotions, and situations and prompt them to come up with their solutions. The advisors can also offer alternative plans. These are conversations that bring the client and the advisor closer and ultimately dispense advice that the client can act on.
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About the Author
Meghaan Lurtz, Ph.D., is a lecturer in the M.P.S. in Wealth Management program at the Columbia University School of Professional Studies. She teaches Financial Psychology, which focuses on the intersection of human psychology and wealth management and the basic elements of consumer behavior. Her students explore all of the biases, behaviors, and perceptions that impact client decision-making and financial well-being. Dr. Lurtz co-authored two chapters in Financial Psychology, a book published by the Certified Financial Planner Board.
Dr. Lurtz is a writer and senior research associate with Kitces.com, a blog dedicated to the practice of financial planning. She has been quoted in New York magazine, The New York Times, and The Wall Street Journal. Dr. Lurtz earned her Ph.D. in personal financial planning from Kansas State University, her M.S. in industrial organizational psychology from Capella University, and her B.A. in psychology, philosophy, and Spanish from the University of Kansas.
