Pychologists counsel patients on their mental baggage. Advisors sometimes do the same, especially when it comes to money.
Clients of all ages can bring long-held yet misguided beliefs into their financial planning conversations. While some advisors might look past an individual’s hang-ups, others dig deep to try to reset their attitudes, expectations and perceptions.
Indulging a client’s distorted views about money might make sense in the short run. After all, most advisors aren’t trained as psychologists and lack the specialized skills to address potentially self-destructive behavior.
At the same time, advisors may conclude that doing nothing — and allowing clients to cling to false or irrational thoughts about money — can stymie their ability to save and spend in a fulfilling, productive manner.
“It’s about what stresses them out and what keeps them up at night,” said Rachel Gottlieb, a certified financial planner in New York City.
Separating real concerns about, say, budgeting and investment returns from rampant fears can test an advisor’s mettle. Listening without judgment, probing gently and providing a reliably calm, steady hand can help stabilize a client’s misplaced anxiety and emotions.
Seasoned advisors confront many psychological challenges that can afflict their clients. Examples include people who dread any kind of investing (“I’ll lose all my money!”), feel they don’t deserve so much money (“It’s just not right!”) or equate their net worth with their self-worth (“I’ve got to keep getting richer or else I’m a loser.”).
To free clients from such self-imposed chokeholds, advisors must exercise patience. Like therapists, they launch a voyage of self-discovery in the hope that clients will eventually decide to uproot their deeply held assumptions.
Our life experience influences how we treat money. Those who experienced hard times in their youth may find those early hardships lodge themselves in their psyche for decades.
“Some clients who grew up in the Depression (in the 1930s) feel that they will never have enough wealth,” Gottlieb said. “So they spend well below their means.”
She cites an example of a wealthy widow in her 80s who, despite her substantial holdings, constantly fears running out of money and not being able to pay her bills.
Bringing in the widow’s three adult children for a heart-to-heart meeting helped. They repeatedly assured her, “Mom, you’re going to have enough money.”
Younger investors are not immune from a Depression-era mindset. They may harbor such a strong aversion to the markets that they refuse to engage.
“Some of my millennial clients are scarred from the (2007-08) financial crisis,” said Brad Bernstein, a certified financial planner in Philadelphia, Pa. “They just have this short, disastrous experience” that undermined their faith in investing.
Bernstein, who studied psychology in college, seeks to educate young professionals by discussing historical returns over time. He finds that they often overcome their investing phobia once they understand long-term market trends.
In some cases, Bernstein accepts an individual’s baggage and works around it. He recalls meeting a couple in which the wife had “some kind of horrible experience with an advisor.”
As a result, she refused to be in the same room with him. So Bernstein wound up advising her husband — and he remains a client seven years later.
In order for advisors to double as therapists, they need to listen well. That can prove difficult because of their eagerness to solve clients’ problems.
“It takes discipline not to interrupt a client,” said Nick Strain, a certified financial planner in Long Beach, Calif. Instead of jumping in to recommend an action or give his opinion, he prefers to keep quiet and let people direct the conversation.
When he senses that clients have covered everything on their mind, Strain replies, “Is there anything else you’re thinking about?”
If they say no, Strain still resists shifting into advice-giving mode. First, he reviews each of the main points they made and says, “Tell me more about that.”
By giving clients ample opportunities to open up, Strain positions himself as an attentive, nonjudgmental listener. He takes notes and stays silent.
“It works so well,” he said. “If you interrupt and dive into the first point you hear them make, you can miss the five or six other topics they’re thinking about.”
He has also learned to ask permission before he proposes a solution or dishes out advice. Even if he’s certain that he can provide constructive input or a practical tip to help a client overcome a money-related psychological barrier, he withholds his comment until he receives an affirmative response to his question, “Would you like some help in solving that problem?”