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Financial Planning, October 1, 2002:
Year Two Blues Are chronic stress and uncertainty clouding your clients' abilities to make sound financial decisions? October 1 2002 It's been more than a year since the twin towers came down. September 11 wasn't just an anniversary -- it was the beginning of "Year Two." As anyone who has experienced a long-term job search or illness knows, the second year is different. The slow and steady accumulation of stress can lead to a sudden breaking point. Those who work under long-term pressure and uncertainty may discover it is often harder than making it through the turbulent times of a crisis. Keeping a financial practice healthy under these circumstances requires flexibility and skill. A good starting point is to answer the following questions:
Making sound financial decisions can be difficult at the best of times. As things heat up, so does the range of what people are likely to do. When people hit a certain level of stress, they reach a "fight or flight" point. "Fighters" take charge, regardless of whether their choices make the most sense. Those with "flight" tendencies are vulnerable to decision paralysis and may be overwhelmed. As a financial adviser, you have to be aware of your clients' styles and help them regain their balance. Some clients need help resisting impulsive action. If they seem to be running in the wrong direction, it can be useful to remind them that the best way to cope may be minor course corrections. Long-term challenges require long-term solutions. If the course of action they are considering wasn't right at the four- or six-month point, why is it right now? Has the big picture really changed, or does the client need help managing the stress of uncertainty? If it's the latter, both adviser and client need to remember that the pressure to make a big change is often just that--pressure. Slow-to-decide clients will have the opposite challenge. Under stress they tend to feel unable to make choices. They need to be reminded that feeling overwhelmed is just a feeling. If some changes are necessary, this client will need to feel safer in order to think more clearly. To decrease decision paralysis, address one aspect of the portfolio at a time. Behavioral finance research suggests that offering too many choices increases the likelihood of doing nothing. Presenting two or three clear choices is much more manageable than offering four or more options. When clients feel vulnerable or overly stressed, they respond to authority figures differently than when they feel on top of their game. In today's environment, financial planners may see a wider range of behavior in the office. Those who might be trusting during good times may now be wary or demanding. Those who remain trusting may now become overly passive, waiting for the planner to rescue them. Others will gravitate toward blaming others. Advisers today need to look for these patterns. They may be lurking under the surface. Addressing these kinds of issues early can avoid bigger problems down the road. During periods of stress, planners also need to pay more attention to developing trust and increasing clients' sense of financial safety. When there are significant loses, advisers may need to help clients first tolerate their grief or anger and then help them focus on their basic financial needs. Advisers also may need to go beyond active listening skills and work on understanding clients' coping styles. Clients may not be able to put thoughts or feelings into words. If this is the case, planners should pay close attention to their behavior patterns. Do they over- or under-respond to distress? Do they tend to be angry, sad or passive during times of difficulty? Do they blame themselves or others? If a client isn't communicating, you may need to gently probe about his or her concerns. Some clients may be developing feelings about finances that they haven't experienced before. As an adviser, it helps to be sensitive to what money means to them. For one person, money provides safety; for others it is the source of control, status (or lack of it) or an unwanted chore. In order for financial advisers to function as a stabilizing force, they must go beyond the objective facts and understand what the changing financial picture represents to clients. The idea of losing their resources makes people feel extremely vulnerable. It is important to remember that coping with extended difficulties doesn't really require new skills. It just requires that people don't stop using the skills they already have because the distress has lasted longer than they first imagined. The core of strength is still there, but it is a reservoir one can only tap into a day at a time. Carol M. Kauffman, Ph.D., and Marcia C. Brier are partners in Family Legacy Services, a consulting service to financial advisers, family offices and private client departments. They can be reached by e-mail via carol@CarolKauffman.com or MBrier@mcbcommunications.com. -Carol Kauffman and Marcia Brier
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