Why Advisors Need Behavioral Finance as Much As Clients

Oct 6, 2020 Share This 


Advisors Need Behavioral FinanceIf you’re like many financial advisors, you might have studied economics and gotten a business, finance or accounting degree. Or maybe you’re just naturally analytical and have always been good with numbers. Make no mistake, those attributes are definitely a good thing when it comes to managing your clients’ money.

But you’ve probably also been confronted with the need to help your clients manage their emotions. Helping them keep a cool head when markets or life circumstances don’t go their way is vitally important. However, in the quest to help clients manage their emotions, some advisors may have skipped the most important step: managing their own.

Addressing Your Own Fears

Recent global events have been concerning to many of your clients, and concerning to you, too, no doubt. Some advisors may be tempted to hold their own emotions close to the vest when meeting with clients. However, letting them in on your own feelings about the impact of the pandemic including staggering unemployment, market volatility and, of course, potential health risks, could be refreshing and reassuring to them.

Much like your clients, you’ve likely seen your own portfolio take a hit and are concerned about future volatility. You’re likely having to strategize how to navigate through this time of economic uncertainty, and many of those strategic insights may apply to your clients’ situations. Add to that the responsibilities of guiding your clients through times of financial uncertainty, and the stress mounts. Knowing they’re not alone and that you’re walking a similar path can go a long way in building trust.

Vulnerability helps your clients see your human side. Acknowledging to your clients that you don’t have all the answers and that you’ve experienced many of the same pains and economic consequences of the pandemic may go a long way in creating a stronger relationship, and set the stage for moving forward together.

A Key to Helping Others May Be Helping Yourself

Acknowledging your own uneasiness over the market correction and ongoing global crisis is generally considered a good practice as part of self care. It’s important to connect with your network of other advisors and friends to gain their perspectives, too. Even as professionals, advisors can be influenced by emotions and be driven to make decisions against their better judgement—the very thing we try to help our clients avoid.

As much as we’re encouraged to help others identify their core values and to make decisions based on those values, we as advisors need to hold true to ourselves and the values we hold up as ideal when guiding clients.

This concept of making rational decisions based on consistent core values instead of shifting emotions is the bedrock of the behavioral finance approach that many advisors use when working with clients. Focusing decisions about money around who they are and what they value may help them feel more clarity and confidence.

A behavioral finance approach helps shed light on emotional barriers to success and provides tools to deal with the certainty of uncertainty. When you connect on a deeper level, it opens opportunities to grow collectively stronger as you navigate uncharted territory together. Becoming emotionally attuned to yourself and to your clients may just be the differentiator between being a financial advisor and being someone’s personal financial advisor.

Go Deeper

Despite some inaccurate stereotypes portraying financial advisors as pushy salespeople who sell products and are in it for themselves, we know that advisors are humans with real emotions and that most are fueled by a passion to help others attain their financial goals. Rather than selling products, you sell ideas and help cast a vision for a bright future.

Chances are, your clients need someone who can help them beyond simply accumulating wealth; they ultimately look to you to help them enjoy a certain lifestyle, leave a legacy for loved ones or direct some of that money to causes they care about. When you can be in tune with your own emotions, you’ll likely be able to be in tune with theirs and more fully understand their values and where they want to go in life.

Much of the content from this article stems from a Think2Perform podcast featuring Martin Powell, Head of Annuity Distribution at CUNA Mutual Group. To hear deeper insights, be sure to check out the full episode.

To take a deeper dive into the behavioral finance approach, access An Advisor’s Guide to Behavioral Finance below. In it, you’ll see research-backed information on how to identify clients’ motivators, biases and limitations surrounding finances so you can help them make purposeful investment decisions.

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