How often has this happened to you? You prepare a well-thought-out financial plan focused on your client's expressed needs and goals. The client thanks you and takes it home. But whenever you ask about implementing it, he's "not quite ready yet."
It's impossible to read minds, but an understanding of how people's brains work can help you better serve clients. "Advisors who are able to get people to think more deeply and accurately will be valued by their clients," David Rock, author of the 2009 business bestseller "Your Brain at Work," told us. "And getting them to think about the brain—or having a conversation about brain functioning—is a relatively safe way of increasing metacognition around difficult decisions." In other words, encouraging clients to think about their thinking can help them make healthier choices.
To explore this timely issue, we asked Rock and other authorities at the crossroads of neuroscience and psychology to share their views of what goes on in the brain when people make up their minds. In a follow-up article next month, we'll discuss concrete ways you can use this information to aid clients (and yourself) in making wiser decisions.
Exploring the Brain
New tools like PET scans and fMRI (functional magnetic resonance imaging) are giving neuroscientists an unprecedented view of how brains work: how we take in information, process it and shape our behavior in response to it.
One of the fundamental discoveries in this burgeoning field is that our "neuroplastic" brain continually rewires itself as a result of what we learn. In fact, there is increasing evidence that staying mentally active and forging new neural connections can improve general health and longevity. People of all ages are practicing mindfulness and physical fitness techniques that mobilize the brain-body connection to promote health, integration and a sense of well-being.
Research and therapeutic practice both point to the role of emotions in organizing the brain. When clients get in touch with their feelings and learn how to frame their thoughts and reactions in a healthy way (with the assistance of a therapy professional, if needed), they gradually create new neural connections that make it possible to bypass their old emotional reactions to painful experiences and make healthier decisions in the future.
Although advisors aren't therapists, if you understand this new knowledge about how we function, you can keep your clients from being hijacked by knee-jerk emotional reactions and make better financial choices. It all begins with the basic understanding that people have not one brain but two.
Two Ways to Think
Early research with brain-damaged patients suggested that our brains' two hemispheres had different specializations. The "right brain," which controls the left side of the body, was thought to be responsible for creativity, artistic ability and deep insights, as well as processing intuition and emotions and empathizing with the emotions of others. The "left brain," which controls the right side of the body, was seen as specializing in logic and analytical thinking.
Although this simplified view of the brain has passed into popular lore, it's not really accurate. Tasks are not bilaterally segregated; in fact, some parts of the brain can fill in when others are damaged. It's more true to say, as Daniel Kahneman posited in his 2011 bestseller, "Thinking Fast and Slow," that people have two thought systems: a fast, instinctive and emotional brain (which he calls System 1), and a slower, more deliberative and more logical brain (System 2).
A Nobel Prize winner in 2002 for research into the psychology of judgment and decision-making, behavioral economics and happiness, Kahneman found that because the more cautious and analytical System 2 is lazy and tires easily, we often accept the quick and dirty assessments of the intuitive and largely unconscious System 1. "Although System 2 believes itself to be where the action is, the automatic System 1 is the hero of this book," he said in "Thinking Fast and Slow."
Earlier, Wall Street Journal writer Jason Zweig drew a distinction between reflective and reflexive thinking in 2007's "Your Money and Your Brain: How the New Science of Neuroeconomics Can Make You Rich," one of the first books about the neuroscience of investing.
In Zweig's view, "reflexive" thinking specializes in identifying and recognizing danger as well as rewards such as food, sex or money. This instinctive and emotional part of the brain often overpowers our "reflective" system, which is designed to ponder before making decisions.
Clearly, we need to change the conversation from "left" and "right" brains to "rational" and "emotional" brains. Most neuroscientists, psychologists and neuroeconomists agree.
'Money Is Never Just About Money'
Either by nature or training, many financial professionals are rational-mind-dominant, at home with facts and figures. The minority who are emotional-mind-dominant typically enjoy helping people and tend to be more relationship-centered.
It's important for advisors to take their own process dominance into account in guiding clients toward a decision. If you make the mistake of relying solely on rational arguments, you're "missing what's actually going on with people," said Portland, Ore.-based marriage and family therapist Bonnie Badenoch, Ph.D., who specializes in relational neuroscience.
"Money is never just about money," she pointed out. "It always involves a complex relationship about what money means. Even though both hemispheres of the brain fire with most experiences, we do have two modes of relating to the world. In one mode, we're dealing more with the emotional complexities around money. So before looking at clients' more rational goals, it's crucial to involve them in a conversation that engages this emotional mode."
We asked Badenoch, the author of "Being a Brain-Wise Therapist: A Practical Guide for Interpersonal Neurobiology," what would be different about this conversation. "It's more about what we feel in our bodies when we think about money and the future," she said. "Body sensations are the gateway to our emotional world. What we're most apt to do about money is powerfully influenced by these emotions, both below the level of conscious awareness and as they inform what we believe to be our rational thoughts."
The Wisdom of the Unconscious
Rock, who is executive director of the NeuroLeadership Institute, noted that we are nowhere near rational in making decisions. In fact, our capacity for logical thinking is woefully limited. "We have the rational resources of a $2 calculator," he pointed out. "We start to fall apart adding up four digits in our head."
The rest of our brain—the emotional, unconscious part—is more like a supercomputer. But because the mechanism for how we make decisions is hidden behind a curtain, we think we are rational. In reality, Rock said, we are entirely irrational and don't know it.
Decisions made by our emotional brain may be triggered by a dip in the market, a hot tip from a friend or a buried memory. But are those choices always bad? Many students of brain science don't think so.
"How many times have you gone against a gut feeling and ended up making a poor decision?" asked Dave Jetson, a mental health counselor who works with financial planner Rick Kahler in Rapid City, S.D.
We like to believe that our conscious, rational mind controls the decision-making process, but Jetson suggested that the unconscious brain is far more dominant in decision-making. "Research shows that our conscious mind—our thoughts and memories—are involved in only 1% to 9% of every decision," he said. "The rest is unconscious."
Our emotions' powerful effect on decision-making takes place at this unconscious level, which means we are largely unaware of it and may have unknowingly suppressed those emotions. "Every culture I've worked with, except for non-Westernized Aborigines in Australia, teaches people to hide their feelings," said Jetson, author of the soon-to-be-published "Finding Emotional Freedom: Access the Truth Your Brain Already Knows." "When I'm feeling sad or scared, unconsciously I know I'm not supposed to feel that, so I get angry, act out, indulge in my addictions as a way to distract myself from my true feelings."
