Finding the right words in a crisis is never easy. However, when it comes to knowing what to say and how to say it – to yourself or others – one cure does not always fit all. Every client experiences anxiety in different ways, and so it’s up to advisers to find personalised ways of helping them cope.
It’s important for each adviser to understand the right action for their client to take, and the most effective messages for their client to hear.
Soft-spoken reminders to be reasonable are rarely heard when the screams of plunging stocks are hitting the headlines and their values are hitting new lows. Clients must be reminded that taking action amid such noise isn’t necessarily difficult – indeed, often it’s far too easy – but it is dangerous.
It’s dangerous because humans have a hardwired bias to action. We dislike uncertainty and a lack of control so much that we can derive comfort even from certain disaster – as long as it’s certain. Even an evil overlord can be an antidote to the anxiety of chaos because at least it has a face we can point at. Market turmoil does not provide the sort of strong base from which effective decisions are made. But they are the strongest trigger for kneejerk decisions, however costly.
All, however, is not lost. What advisers should be seeking to achieve is to help their clients to take the right action for themselves. That right action could be doing nothing, but doing nothing because of comforting messages, not despite discomforting ones.
Zoom out a little and there are some simple and sensible things we can tell ourselves and our clients, and some strong and safe actions we can take. We want to assuage our clients’ need to be feeling they should be doing something right now, while also securing their emotions to a longer time horizon.
Regardless of personality, there are also universal principles that can provide helpful perspective when advising clients in times like this. The three most useful things for all of us to keep in mind right now are:
What should be done beyond these universals depends on your client’s financial personality. This provides the unique recipe for investment-derived emotional comfort, so that you can help them to achieve it in a cost-effective and deliberate way. Prevention is better than panic, but even when it’s too late for prevention this time, panic needn’t be allowed to set in.
Understanding multiple aspects of your client’s financial personality is crucial to knowing how best to advise them on their response in a crisis. These can guide you on the best way to help them approach their portfolio in these turbulent times, helping to prevent the costly kneejerk response that may feel so tempting to them.
For example, here a just a couple of the personality dimensions and possible recommendations:
Financial personality profiling allows us to help our clients predict where they’re likely to make poor decisions and in turn steer them away from these impulses. It helps them acquire the emotional comfort they need in a cheap, planned, and efficient way, rather than panic-buying their way back to comfort by panic-selling under stress.
And finally, don’t say ‘don’t panic’ – It helps no one. If your client is already panicking it won’t work; and if they’re not, you may wonder if they should be.
Greg is a specialist in applied behavioural finance, decision science, impact investing, and financial wellbeing.
He started the banking world’s first behavioural finance team at Barclays in 2006, which he led for a decade.
In 2017 he joined Oxford Risk to lead the development of behavioural decision support software to help people make the best possible financial decisions.
Greg holds a PhD in Behavioural Decision Theory from Cambridge; has held academic affiliations at UCL, Imperial College, and Oxford; and is author of Behavioral Investment Management.
Greg is also Chair of Sound and Music, the UK’s national charity for new music, and the creator of Open Outcry, a ‘reality opera’ premiered in London in 2012, creating live performance from a functioning trading floor.
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