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We are defined by our experiences, even the ones we’d rather forget. Actions, reactions, feelings, beliefs – everything we say and do is influenced by echoes of the past. Emotionally charged memories have a way of erupting like long-buried landmines when we step too close, dragging us straight back to the painful days we’d thought were long behind us. Even decades-old memories, faded beyond conscious recollection, retain their potency and ability to evoke visceral responses when triggered by the right stimuli.
You already know that money can be a very touchy subject. As a financial advisor, you’ve seen it dozens of times: the faint embarrassment when a client lays out their financial situation for you, the way jaws tighten and shoulders stiffen when you start talking about realistic retirement planning or suggest a more aggressive investing strategy.
Welcome or not, emotions surface and enter the conversation.
Emotional investing
It’s inevitable. Client assets represent a lifetime of hard work and harder decisions; of course, you’re going to stir up some buried emotions when you sift through it all. Painful lessons, fuzzy memories of watching parents fret over unpaid bills, lean days after job losses and market crashes, the pure panic of feeling buried in debt – their whole financial life resurfaces every time they step into your office.
You understand. You’re as human as anyone else. But you also understand something just as crucial: Emotions and investing don’t mix.
It is challenging to deal with clients who are so clearly stuck in their financial pasts. Strong emotions don’t lead to calculated financial decisions, after all, which makes doing your job much harder.
On the one hand, emotions present a significant problem. You put in countless hours of work and study to become a great financial advisor, not to be a therapist. Talking your clients out of making bad decisions shouldn’t be your responsibility. And you know there’s a simple way to solve the issue once and for all: Show your emotional clients the door and wash your hands of it.
If, on the other hand, you’d prefer to keep all of your clients – not just the perfectly rational and unemotional ones (do those exist?) – shift your paradigm a bit.
Investing in emotion
Money beliefs
A great first step in incorporating your clients’ emotions into your advisory approach is to understand their money beliefs (sometimes called “scripts”). Money beliefs are ideas, thoughts, or opinions that impact one’s money behavior.
According to the Klontz Money Script Inventory, developed by Britt, Klontz, Klontz, and Mentzer and published in the Journal of Financial Therapy, money beliefs can be summed up by four factors: money avoidance, money worship, money status, and money vigilance.
- Money avoidance is characterized by anti-rich sentiment and the belief that one does not deserve money.
- Money worship includes the belief that money brings happiness and power.
- Money status is characterized by the belief that success is defined by income and material possessions.
- Money vigilance is defined by a strong emphasis on saving and the belief that open conversations about money are inappropriate.
While you might not be a certified financial therapist, you are a money expert and you’ve seen firsthand how unhealthy money beliefs can be a detriment to the financial and mental wellbeing of individuals and families. Discussing money beliefs with your clients allows them to both feel understood and give them a framework for navigating strong emotions that affect their financial thoughts and behaviors.
Goal setting
Now that you’ve helped your clients understand their past and adopt healthier money beliefs, turn those beliefs into goals.
If you’re working with a client who falls into the “money status” category and is prone to spending their money on status symbols instead of saving it, advise them to set a goal of building an emergency fund that can cover six or more months of expenses.
If you have a client who presents as a textbook “money vigilance” type and tends to save all their money due to a strong risk aversion, guide them toward a more aggressive investing strategy.
Whatever your client’s individual needs may be, help them set goals that are both realistic and measurable.
Habit building
With goals in place, your clients must build strong habits that will help them achieve these goals.
Some habits that pay large dividends include setting aside money from every paycheck for an emergency fund or retirement account, spending less money on status symbols and more on essentials, and seeking ways to take calculated risks with money in the pursuit of better returns than a savings account (or the underside of a mattress) will produce.
Put the “advisor” in financial advisor
The advisory profession is changing rapidly, and many are questioning the value of having a financial advisor. And rightfully so, because the same value we brought to people 30 years ago is not the same value we bring now, and it won’t be the same 30 years from now.
With the constant chatter about technology and AI swooping in to replace financial advisors all together, sharpen your empathy and emotional connection with your clients. Our humanity is a cornerstone of our value as advisors, and it will continue to separate us from artificial intelligence, robo-advisors, and chatbots.
You already have people skills. You couldn’t get clients without them. So think of yourself as financial therapist in addition to a financial advisor. Think of it like putting together emotional investment strategies and performing analysis on the portfolio in your clients’ hearts. It might just be the key to securing new clients and keeping your existing ones satisfied.
Matt Reiner is a CFA, CFP®, and partner at Capital Investment Advisors, a $2.8+ billion RIA in Atlanta. Reiner is also CEO of Wela Strategies, a sister company to Capital Investment Advisors, and is the founder and CEO of Benjamin™. Benjamin is an AI technology created by Reiner after seeing the gaps in technology used in his own firm. Reiner's true passion is using his vast experience to coach other advisors across the country, helping them evaluate their firms' practices and find the best strategies for future success. To reach Matt Reiner, visit www.MattReiner.com.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
