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Connecting with clients鈥� emotions in uncertain times

Challenging market conditions affect your clients鈥� portfolio as well as their state of mind. Addressing their concerns, both financially and emotionally, can help you forge stronger relationships that last for years to come.

Feelings before actions

People are naturally inclined to respond to threats with action. That instinct is typically the right response when faced with dangerous situations. While the market isn鈥檛 a literal bear, or necessarily always a threat, the impulse to seek safety is natural. It can backfire, however, when we make decisions that  may be counterproductive in the long run.

For example, in 2022, U.S. stocks saw their worst performance since 2008, ending the year down , Investors who react by pulling money out won鈥檛 be able to benefit from any recovery that has generally followed.

Before making any moves, first take time to understand what's driving your clients' decisions. Ask them what's happening in their lives 鈥� and really listen. Consider starting with questions that check on emotions and use that as a basis to search for more financial information:

• How have you been affected by recent market conditions?
• Are other issues creating financial stress? 
• How concerned are you about significant short-term losses?
• How do you think this uncertain market will affect long-term goals such as retirement or paying for a child's college education?

Connecting with clients on an emotional level can generate valuable insights into how they make financial decisions in good times and in stressful times, and how they tend to react to uncertain market environments. Those insights can help you tailor a financial plan that better fits their needs and goals. Plus, these connections can help earn your clients' trust.

Behaviors matter

Each of your clients will have their own reactions to market events as well as life events. But the underlying causes of those reactions may be quite similar. The field of behavioral finance focuses on common emotional and cognitive biases that can influence our decisions around financial issues such as saving, spending and investing. Behaviors such as overconfidence and availability bias can be driving factors in a client's decision to sell during a market downturn or chase a popular investment trend. These biases also can emerge when it comes to building a retirement strategy: Research conducted for 麻豆传媒 by experts from the UCLA Anderson School of Management offers insights into how behavioral biases may be keeping individuals from including annuities in their retirement plan.

Realizing the role behavioral biases can play in your planning process will help you understand, identify and address these biases as they occur. Meanwhile, including behavioral finance principles in the planning process can help counter many of the most common biases. For instance, a well-diversified portfolio with a thoughtful asset allocation strategy can help provide protection against market disruptions and other challenges, giving clients more confidence to withstand the highs and lows of short-term market events.

Connecting with your clients' emotions and developing an understanding of their behavioral tendencies can enhance the planning process. This part of a holistic planning approach can help improve clients' pursuit of their goals and lead to stronger relationships with those clients.

Two things you can do today:

• Meet with your clients and steer the discussion toward how they're feeling in the current environment.
• Share with your clients how behaviors can create roadblocks to smart financial choices to start the conversation.

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