Managing Clients’ Irrational Behaviors

If you were paying attention during high school history, you’ll remember President Franklin D. Roosevelt told Americans in his first inaugural address, “The only thing we have to fear is fear itself.”

He made that statement in 1933 during the depths of the Great Depression. And he zeroed in on the source of so much financial misery, both then and today.


Fear is a powerful, paralyzing negative force. It stops us in our tracks physically, mentally and emotionally. Left unchecked, it can make us do things we later regret. Because fear clouds judgment, and that leads to gut-level reaction instead of logical big picture thinking. Fear makes everything seem murky, making it difficult to see beyond the present moment. And when the present moment looks gloomy, everything on the horizon seems dark too.

As financial advisors, we’ve all seen in 2022 how wildly fluctuating markets can trigger fear, which in turn triggers irrationality.

Countering fear and the resulting irrationality is an invaluable service we can provide as financial advisors. Far more valuable, in fact, than any guidance that includes the words “buy or sell.”

If you take the time to thoroughly discuss the current market realities with your clients, you can help them see how their emotional decision-making hinders them from achieving their long-term financial goals.  

My book Dr. Cole Cash Will See You Now addresses this problem. In the story, Dr. Cole Cash helps advisors understand that the most important part of our job isn’t managing other people’s money; it’s serving as a psychologist to help them navigate their way through their fears, misconceptions, and misunderstandings. Let me give you an example of what I mean.

Consider the perception of value. I looked at several psychological studies to understand how we can successfully give our clients a better understanding of value. One study, in particular, stands out. It involves what Dr. Cole Cash calls the “pain medication in pricing.” It boils down to this question: Does the price of the pain medication determine the effect of the medication itself? Here’s how they put it to the test.

Patients suffering from back pain were placed in two groups. Both were given the same medicine. The first group was told the medication cost $2.50 per dose. And 90 percent of patients reported the medicine relieved their pain. However, the other group was told their medication cost ten cents per dose. And guess what? Less than 50 percent of those patients said the medicine reduced their pain.

The study’s lesson: The perception of value determines impact. In our world, clients think a stock that has a higher price is more valuable than one that costs less. As financial advisors, we know that’s not the case because sound investing is based on fundamentals.

Which shows that clients are often irrational. Add to that fear triggered by unstable markets and financial anxiety, and you’ve got the perfect storm for making clients act, as Dr. Cole Cash puts it, “funny with their money.”

That’s why this piece of your work as a financial advisor is invaluable to the client. In unsettled times, you are the voice of reason, a rock on which to anchor themselves amid all the turmoil that’s troubling their mind and leading them in directions that could ultimately prove harmful. You are the skipper who, by using a psychological approach, can help steer them away from all the doubts, worries, and second-guessing. You can educate them about true value and show how investments aren’t always what they seem at first glance. In short, you can give your clients a better night’s sleep.

But you can only achieve those benefits by putting in the work. Invest extra time in talking with the client. Make sure you understand their many internal forces — their upbringing, bad results from previous bad decisions, and so on. Then go into psychologist mode. Tackle fear with facts. Fear is an emotion; facts are based on reason. Reaching the client mentally can clear their head and pushes irrationality out of the picture. Once they understand the “why” of what they’re doing, they’re better positioned to make sound decisions.

And that’s a win-win for everyone.