An Advisor’s Dual Role As A Psychologist And Recognizing When Clients Are Irrational

You know the markets. You know funds. You know which trends to watch, and which to ignore.

But do you know Freud, Jung, Adler and Skinner?  If not, You should read up on these giants of psychology. Because understanding the fundamentals of human psychology will go a long way in helping you grow your career as a financial advisor.

That’s because we not only deal with our clients’ money but also how they feel about their money. And feelings can get pretty complicated. When emotions are involved, judgment gets cloudy and thinking becomes murky. This, in turn, leads to irrational decisions that are harmful to achieving long-term goals and objectives.

Nothing, but nothing, stirs emotions more aggressively than the uncertainty we’ve seen in the markets this winter and spring. If you think it’s stressful for you, just imagine what it’s like for the clients who have entrusted their money to your hands.

In anxious times like these, it’s your responsibility as a wealth manager to assist your clients in successfully navigating difficult emotions. 

So, how can you help them?

Start by doing what a good psychologist does at the beginning: Listen to them. Let the client spill their guts. Hear them when they explain their worries, concerns and doubts. Pay close attention as they also tell you their hopes, dreams and goals.

Once you have sifted through all this emotional context, you’ll have a better understanding of where the client is coming from. That positions you to hold their hand and dispel their dark fear by sharing fact-based information.

Be sure to ask them about their upbringing. Everyone brings their past with them into a relationship. Did they grow up in a home that was averse to risk? Are they burned by previous bad decisions? Did they witness friends or relatives who were scarred by financial reversals? Do they fear that same fate?

Such experiences can turn into “money blocks” in the client’s mind. These memories become triggers that make the client act irrationally when making financial decisions.  

A good financial advisor takes the time to identify potential blocks and guides the client around them.

In my book, Dr. Cole Cash Will See You Now, I describe how a fictitious psychologist helps wealth managers overcome their own emotions, fears and challenges. He does that by asking questions in a safe, open environment where the managers can share their innermost emotions. He doesn’t tell them anything; he listens to them.

The same applies to you and your clients. The most beneficial thing you can do to get off on the right foot with a new client is listen.  Kick-off your relationship with three simple words: “So, tell me…”

Then unplug your mind, open your ears, and truly hear their responses. Strive to understand what they really mean. Let them tell you in their own way and at their own pace — even if they ramble or meander. Make sure they feel free to let it all come tumbling out on their timetable, not yours.

Once they finish sharing, ask questions to flesh out your understanding. Something like, “Please tell me more about your father’s experience when you were a child. What happened and what went wrong.” Again, let them share their answers in their own way at their own comfort level.

At this point, something interesting begins to happen on both sides of the table. Walls come down. Empathy and understanding take root. Trust is established. And a genuine relationship, financial yet also deeply human, is born.

It’s one thing to manage people’s money. It’s something else to help them manage their emotions regarding their wealth. Achieving that breakthrough can make the client feel good about the results you help them achieve and their connection to money itself, too.

Best of all, you don’t need a degree in psychology to make this approach work. All you need is a desire to truly understand, time and patience, and a willingness to utter the three words that can change everything.

“So, tell me….”