After the past few years of financial turmoil, shattered confidence and anxiety about the future, many investors are understandably in shock. Advisors describe the resulting behavior in different ways—clients are "paralyzed," "stuck," look like "deer in the headlights"—but it comes down to an inability to make rational decisions.
To address this situation, I decided to ask a couple of other experts to add their perspectives to mine as a psychotherapist and coach. I first consulted Susan Bradley, a CFP and founder of The Sudden Money Institute in Palm Beach Gardens, Fla., who has spent the past 11 years researching the strong emotional responses of people in transition and who now helps financial planners develop expertise in dealing with these kinds of changes.
My second interviewee was Liz Davidson, founder and CEO of Financial Finesse in El Segundo, Calif., a company that provides financial education as an employee benefit in more than 400 large- and medium-size organizations. Here's how Bradley, Davidson and I would advise you to proceed with some examples of client paralysis.
Q: Despite the market recovery, a couple I work with haven't regained their appetite for investing. I've counseled them on how much growth can be missed by being out of the market during a rebound, but it hasn't made any difference. How can I reach them more effectively?
A: Susan Bradley told me about a planner who moved a client from paralysis to action using her Sudden Money protocol. After taking all his money out of the market in early 2008, this client was proud that he hadn't lost a dime. The advisor working with him said, "Well, I can't guarantee that you will never lose a dime in the future, but I can help you meet more of your goals." He suggested that the client divide his money into "purpose allocations." Absolute safety would be just one of these purposes. The money in that particular category might not even keep pace with inflation, but the client could be sure he wouldn't lose any of it.
The second purpose was to stay ahead of inflation and taxes while providing liquidity and support as needed. This portfolio was a blend of bonds. The third purpose, long-term growth to build an estate that could be passed on to the client's children, was implemented through higher risk/reward investments.
A key part of getting the client to buy into this triple-strength strategy was a visual depiction that transformed it into clear, actionable decisions. "People can get lost in a complicated discussion, but they don't raise their hand and say, 'I'm lost,'" Bradley says. "Successful advisors are usually very good at building relationships, but when clients freeze, they're not as easy to communicate with. You need to communicate in a way that uses their preferred mode or modes of learning and accessing information."
Q: I've always enjoyed working with a client who began investing in the early '90s. Although she held on through downturns with confidence that the market would come back, she seems to have lost heart since the recent crash. I have been told to do as I think best with her portfolio. I'm glad she trusts me, but I don't think this apathetic attitude is healthy. Do you think it's just temporary? Should I do something about it?
A: Whether her desire to surrender total decision-making authority to you is temporary or long-term, I would suggest that you find a creative and sensitive way to keep her in the loop. In Susan Bradley's words, this client is basically caving or hibernating. She needs to stay connected for the sake of her future well-being.
First, I would listen to and empathize with her sense of emotional exhaustion. Let her know you understand why she wants you to take over managing her portfolio. Then tell her what parts of the decision-making process you will be happy to handle, and what parts still need her involvement in order for you to feel that you are serving her with integrity and objectivity.
Bradley also suggests bringing her out of her "hibernation" state in increments. Keep educating your client about her investments in ways she can tolerate. Since many women learn best in collaborative environments, you might even consider inviting all your women clients to a talk on dealing with the overwhelming shock and turmoil of the past few years.
Q: A client of mine who is selling his business has voiced an interest in investing the bulk of the proceeds in gold. I think this is a terrible idea, but how can I talk to him about it in a way that's effective?
A: I believe you need to make more time to find out what's going on with this client. What thought processes and feelings are leading him to what you believe is a disastrous course of action?
