Outside voices and views for advisers

When to push your client outside their comfort zone

Sometimes it's necessary to move people to uncomfortable places to give them the best financial help possible

Jun 23, 2014 @ 9:59 am

By Mike West

comfort zone, advice, financial planning
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“We find comfort among those who agree with us — growth among those who don't.”

— Frank A. Clark

Investors and their advisers are faced with a dizzying array of financial strategies and products. Moreover, some experts suggest that the traditional 60/40 allocation model is dead and that investors need to diversify assets and strategies in their portfolios. But with the call to diversify across new asset classes comes the possibility of newer products ending up in investors' portfolios — products that are harder to explain and harder to understand.

Given the difficulty of explaining these products, one might argue that the investor needs to know just enough to stay comfortable — that the adviser should recognize their client's emotions, knowledge and desires, find out what the client's investment comfort zone is, stick to it and then build the portfolio in that zone. When advisers truly understand their clients' comfort zone, they can put them in investments that give them less anxiety and this may help investors meet their long-term performance goals.

One meets this “comfort zone” model often in our industry, and it seems a reasonable way to help clients. But is it sound? Let's dig a bit further.

Psychologist Alaisdair White defines the comfort zone as “a behavioral state within which a person operates in an anxiety-neutral condition, using a limited set of behaviors to deliver a steady level of performance, usually without a sense of risk.” According to this definition, the main goal of the comfort zone is not optimal performance, but rather sustainable performance that minimizes stress. In fact, the term itself suggests that some performance benefits will be sacrificed in favor for comfort.

And that's okay — for some clients. But imagine you have a client who is truly afraid of the market and keeping him within the small confines of his comfort zone would be detrimental to his financial security in the future. What then? Is it not the adviser's job to move that client out of his comfort zone, knowing that he might have to take on a bit of extra stress now in order to find safe harbor later?

The comfort zone, in this case, should probably be expanded. This is consistent with the 1908 study by Harvard psychologists Robert M. Yerkes and John D. Dodson, who explained that a state of relative comfort created a steady level of performance. In order to maximize performance, however, we need a state of relative anxiety — a space where our stress levels are slightly higher than normal. This is the space of "optimal anxiety," and it's just outside our comfort zone, though too much anxiety can cross over into a type of danger zone.

Let's consider an example on the other end of the spectrum: A client who insists on investing in risky securities in an attempt to increase his return. Advisers spend a fair amount of time talking this client off the ledge, consistent with psychologists' claims that excessive anxiety tolerance can approach a danger zone as well. This curvilinear relationship between arousal and performance known as the Yerkes-Dodson curve — an upside-down U shape — is still taught in psychology courses and modern neuroscience has helped confirm it.

Psychology aside, the conundrums surrounding client comfort should serve as an extension of the debate about your role as adviser — what does it mean to give advice and what is the real goal of your job? While advisers should be concerned with clients' comfort and anxiety levels, sometimes it's necessary to move people out of their comfort zone in order to give them the best financial help possible. At the end of the day, one client may need to be talked into investing in less risky securities while another may need a bit of prodding to achieve the returns they need to meet their investment objectives.

Mike West is senior partner and chief executive of BPV Capital Management .


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