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It’s a challenging era for wealth management. Many see us as a commodity, and artificial intelligence is on its way to do much of our work for us – and in some cases, it already is.
To stand out, advisors must shift our focus to the human quality of wealth management. This often gets lost in the numbers and analysis, but clients see their money through an emotional lens, attaching feelings of security and freedom to the size of their portfolios. Down markets and shrinking portfolios can be gut-wrenching experiences. In fact, more than 85% of Americans experience anxiety surrounding money.
When a client comes to you worrying about the future and you offer charts of how the markets work and an analysis of his portfolio, your advice and prescriptions may quell his fear, but not for long. Why? Because you can’t “logic” your way out of an emotional issue.
These emotions and the behaviors they spark are precisely what my firm focuses on, and we trademarked it Behavioral Wealth Management™ – a concept that merges traditional financial advising with psychology.
Behavioral Wealth Management rests on the principle that people lead their lives one choice at a time and that the only one who knows what’s best for each person is that person. With this in mind, our financial advisors’ jobs are to help position our clients so that they are in the best place to make the best decisions as they encounter life’s critical junctions.
Putting behavioral wealth management principles into play
To deliver on that promise, financial advisors need to make sure clients are centered and thinking clearly, that they’re not over- or underestimating their options and that they’re focused on what matters most to them. Clients need to make decisions from a place of confidence, not fear. Here are a few strategies to help you help your clients do just that:
- Concentrate on control
Dire situations cloud judgment, and sometimes clients come in wanting to make rash, unsound decisions. Imagine that a client calls you and says her husband, age 60, is sick. Worrying about the next few years, she says she and her husband want to switch all of their assets to a bond portfolio to protect themselves.
A good advisor would know this is not the best solution, but the clients are in an emotional state. When this happens, we shift their perspective by focusing on what they can and cannot control. Draw a line down the middle of a piece of paper. Ask the client what she can’t control, from the progression of disease and how long her husband will live to the market’s performance. Then move onto what she and her husband can control, including treatment choices, lifestyle changes and her husband’s future work plans. This conversation will empower the client to make clear decisions based on what’s most essential to her.
- Make it a team effort
Behavioral Wealth Management requires expertise in investments, wealth management and behavioral science. High-performing teams are designed to solve complex tasks (think of a surgical team doing brain surgery). At JOYN, we have been working to foster the people and culture to drive those teams. Just recently, we hired a behavioral specialist with a counseling background to tackle our clients’ more difficult emotional conversations.
While everyone on the team operates on the principles of Behavioral Wealth Management, an individual with a counseling background knows human psychology much more deeply than a typical financial advisor. Understanding how different skills contribute to a high-performing team – and actively building such a team – will help you achieve more robust results.
- Tackle challenges with questions, not prescriptions
It is much better to help a client come to his or her own conclusions rather than telling them what to do. The key is to ask questions. I once had a client who aimed to live on his portfolio’s interest alone in retirement. He believed not touching the principal would keep him secure. Any financial advisor could simply tell him that wasn’t the best approach, but instead, I asked him how that belief could be limiting him from living a full life.
As he thought about that, he realized he would have to change his lifestyle, risk causing friction with his spouse, and back him into a bond portfolio with a low total return. I didn’t need to prescribe a solution – he made the decision to rethink his strategy.
- Remind clients that they are capable
It’s natural to worry about money, even for the wealthiest of clients. I see clients who have millions worried about running out of money. They worry about political dysfunction, health issues, the market’s security and more. Here, I start by acknowledging their anxiety. No, they don’t know what the future will hold, and yes, there will likely be some adversity in the years to come.
When that’s out of the way, it’s important to look at what gives them the confidence to navigate those adversities. Clients will start talking – they’ll realize they have a solid support system of friends, family and associates for advice. They recognize they are smart individuals who can solve things. Maybe they conclude that they could be happy living on less. Either way, the client is in a place where we can discuss whatever issues he or she is facing. It’s a better emotional space that breeds better judgment.
Wealth management isn’t just charts and analysis. It’s far more nuanced. Behavioral Wealth Management recognizes that and uses psychology to put clients in control of their futures, guiding them to their own decisions. Test out some of these strategies with your own clients, and you’ll watch them grow more empowered and make stronger decisions with your guidance.
JOYN CEO David Geller has gone beyond wealth management to discover ways to bring meaning and joy to his clients’ lives. His quest resulted in JOYN’s Behavioral Wealth Management™ approach to financial advising, which merges superior wealth management with expertise in behavioral financial science to help clients make better decisions.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.