Understanding Your Client’s Emotional Drivers As A Financial Advisor

You know a lot about ups and downs. As a wealth manager, you know how to devise a successful strategy when markets soar, and what to do when they slump. That’s a vitally important ability in our profession.

But how much do you know about managing your clients’ emotional ups and downs? Their human portfolio has highs and lows just like their financial portfolio. And knowing how to handle emotional turbulence is every bit as essential as navigating fluctuation in the markets.

The first step in developing this skill set is understanding what emotional drivers influence people when it comes to money. That’s not as easy as it sounds. But with insight and practice, you learn to read and respond to your clients’ emotions.

For starters, you may need to tweak how you view your job. You probably see yourself as a wealth manager. You have the know-how to help guide your clients through the maze of complex areas such as investing, insurance, real estate, and retirement planning. You wouldn’t have your job if you didn’t know those things. Now add “behavior coach” to that job description. 

Consider this: In many cases (a surprisingly high number of them, in fact), the client is looking to you to provide more than your financial smarts. They’re seeking assurance — then reassurance — that they are making the right decisions

To provide the encouragement people seek, you must first understand the emotional forces that are driving them. That’s where Behavioral Finance comes into play.

Behavioral Finance is the art of managing the various psychological factors and biases that impact the client’s thinking. You can provide them with reams of clear, concise financial data. But we human beings don’t make decisions based strictly on empirical evidence. A host of other things are factored into the client’s thinking as well. Things like their previous experiences, or the experience—either good or bad—of a friend or loved one, of their hopes, dreams and fears. Each of these factors can play a significant role in the mental calculus that ultimately leads to a decision. 

As a successful wealth manager, you need to be aware of these forces and understand how they can cause people to make irrational decisions. This is where you bring added value to the client-advisor relationship.

While their head and heart deal with internal factors such as the possible loss of a spouse or job, lingering remorse over negative consequences suffered during earlier economic downturns, or even simple fear of the unknown, you can be a calming, reassuring presence. Your assistance tells them they’re not making this financial journey on their own; that they have an experienced guide who is ready to assist them at every twist and turn along the way. In short, you make them realize they’re not alone.

As I have written so many times before on this blog, the two greatest tools available to you for dealing with Behavioral Finance are time and a good set of ears.

Free up your schedule to create more quality time for each client. Not just to make your important points, but to listen to theirs. (See my previous articles about the many ways you can put new technology to work for you by freeing you from routine tasks, thus creating extra time). This is where having a good set of ears comes into play. 

Always remember: The most important part of a conversation is what the other person is trying not to say. It’s also the part you need to hear most of all. Clients are often embarrassed to admit their past failures, ashamed to confess they are frightened, or even reluctant to concede they don’t know very much about the markets they are entering.

Such clients need to hear that it’s OK to have failed, to feel afraid, and to be confused. It’s your responsibility as a wealth manager to hold their hand as they maneuver their way around emotional roadblocks. And in this arena just like all the others, practice makes perfect. The more you do it, the better you become at it, and the easier it becomes. 

When you combine your financial expertise with a firm understanding of Behavioral Finance, you have a powerful way to ease the client’s mind and lead them to a calmer, more rational decision. And that’s a win-win for everyone.