What to Do When Clients Have an Emotional Meltdown

Get clients back on the right behavioral track.

Oct 1, 2016 @ 12:01 am

By Kol Birke, CFP®

Are your clients making financial decisions out of fear or blaming you when something they asked for goes wrong? It's not unusual, but it's also not a comfortable position to be in, as running up against emotionally charged situations can be challenging. Bad financial behavior is often brought on by cognitive biases, rather than truly rational thought. Herd behavior, for example, explains our tendency to follow the crowd. TV personality Jim Cramer can send investors running to cash if he yells loudly enough.

So how can you best help clients avoid bad behavior? Let's take a look at how you can help them manage through an emotional meltdown.

Action: The Antidote for Anxiety

Whether it's herd behavior or something else causing anxiety, for most people, action is the antidote for anxiety; it feels good to do something. Unfortunately for you, even if you tell your clients to sit tight, they'll still want to take some action—even if it's the wrong action. Instead of telling them to do nothing, try to find healthy actions they can take. You could do things together (like rerunning their likelihood of achieving their stated goals), or you could suggest things they could do on their own (like gathering updated data to help with deeper analysis). Just be sure to frame whatever it is in the light of them “taking action.”

Control. People want to feel in control, often even if it means depriving themselves. For clients who would enjoy it, you could suggest they try a spending experiment:

For the next two weeks, observe your spending to compare what provides a lot of happiness and what provides less or none at all. At the end, let's talk and see how it went. In the scenarios we've run, you're most likely not going to need to cut spending, but if you know just how much control you have over your spending, you may be relieved to know that you can still enjoy life.

Healthy distractions. For others, employing healthy distractions can be effective. You can say something along these lines:

You've told me how stressed you get when you focus on the stock market. But, at the same time, you know that you're in good shape financially and that I would let you know if we needed to reassess. Some of my clients have asked me to remind them to focus on the things they most enjoy or that they can most control. In that light, when you call about something out of our control, like the state of the economy, would it be helpful for me to nudge you to play more tennis instead of watching Jim Cramer?

Providing Tough Love

To make all of this worse, in hindsight, humans tend to attribute good outcomes to our own wise actions and bad outcomes to other people's faults or bad luck. Known as self-serving bias, this is why some clients may seem to blame you for drops in their account values when you haven't done anything wrong (and even when you protested the actions they pushed for). I find it useful to separate these kinds of interactions into two buckets: isolated meltdowns that you can weather versus consistent bad behavior that you should curb.

Isolated meltdowns. Nearly all clients will experience fear that they vent as frustration, anger, or blame. When clients have an isolated blowup, ask them what could be learned from this situation that you can bring into future decision making. If you think they're fearful about some future bad outcome, ask them about best, worst, and most likely cases, and what proactive action you can take to optimize for a good outcome.

They will be prompted to verbalize their fears and their more rational thoughts. Plus, it will all come from them, so they'll be more likely to believe it in the future. If you handle these meltdowns well, you'll stand out from the pack of advisors who tend to avoid these difficult conversations altogether—and possibly get referrals as a result!

Consistent bad behavior. For some clients, meltdowns happen more regularly. I've worked with many advisors on this issue, and, ultimately, the most effective technique is tough love. On the “tough” side, you're standing firmly on your integrity; on the “love” side, you're ensuring that clients know you care about them.

Let's say you're working with a difficult client, Carl, who periodically blows up at you or your staff. If you are at the point where you're comfortable with the possibility of losing Carl, but you'd like to try fixing this, you might say something like:

Carl, this has to stop. When you reach out with frustration or push hard for us to do a particular thing that I've said is inadvisable, it makes it impossible for me to serve you with integrity. I love what I do, I care about you, and I take your financial future seriously. It's painful to me when I see you pushing for actions that I've seen cripple other people's ability to stay retired or achieve their other goals.

 In the end, you may have to be very firm:

Carl, I would love to serve you for decades to come, but I'm not willing to have our relationship continue as it is. Here's what I need from now on . . .

Most advisors who have done this have been surprised to find that clients like Carl often reform. And if Carl chooses to leave, you can replace him with three or four great clients who take less time and aggravation.

Art Vs. Science

Human behavior is just as much art as science, and like investing, even your best wisdom and efforts will only optimize your chances of success. In the end, your clients are most likely to follow advice they gave themselves, so rather than wish that they acted as they should, it's far better to help them prepare for what is.

Strengthen client relationships by asking the right questions about investment goals, money management style, and risk tolerance. Download The Client Discovery Worksheet today.

This post originally appeared on Commonwealth Independent Advisor, a blog authored by subject-matter experts at Commonwealth Financial Network®, the nation's largest privately held independent broker/dealer–RIA. To subscribe, please visit http://blog.commonwealth.com/.

Kol Birke is senior vice president, technology strategy, and a financial behavior specialist at Commonwealth Financial Network®, member FINRA/SIPC, an independent broker/dealer–RIA. 


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