How to make better decisions for you and your clients

Watching the calamity and emotional upheaval in Greece, and the tough decision people had to make in their referendum, is a lesson to all of us about the importance of optimizing the choices we make. The country that developed Western philosophy and democracy is rocked at its core by a series of bad choices made over many decades.
As business leaders, we each face tough choices every day, and as advisers we help our clients deal with big financial decisions that could completely change the path of their lives. There is no doubt that optimizing decision making is one of the most powerful secrets to success.
The Greeks were one of the first Western civilizations to note that humans’ impulsive and emotional nature often overwhelms the rational judgment we all need at important decision-making moments. This is an important insight for our effectiveness as guides of our clients’ decisions, and as leaders of our enterprises.
DECISIONS UNDER STRESS
Stress is created whenever we have a big decision with an unknown outcome. Almost all of our clients’ financial lives are filled with uncertainty. They don’t know what stock markets or interest rates will do, nor what life surprises might come their way. That means every financial discussion typically involves anxiety. Managing emotions and stress are crucial to good decision making. That is why I love the tool below as a reference point for myself (and clients) when making big choices.
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We created the chart above with the help of Vedanta Institute to evaluate the level of emotions affecting any given moment. Think of it as a thermometer. On the left side is the disciplined mind — calm, rational and ruled by the intellect. On the right side is the impulsive mind — racing, reactive and led by emotions. Each point reflects different levels of discipline versus impulse as the ratios in the boxes reflect. The further away from point A you go, the less likely you are making an optimal decision. At point A you are 100% disciplined, while at point D you are only 25% disciplined and 75% impulsive and emotional.
(More: Financial advisers tell clients to shrug off the Greek vote)
Every good financial decision needs to be led by the intellect rather than emotions and impulse. Yet the more stress we face, the more likely we are to lose control of our racing mind. Reducing the impact of impulse and emotions on our clients’ decision making is our most important role as advisers.
This visual tool can serve two very useful purposes. First, it can be a reminder to our clients that our job as advisers is to keep them on the left side of the thermometer whenever they are making important financial choices (even though their own instincts will be veering wildly to the right). Second, I use this personally in my own life to check in to myself and make sure I govern my own reactions when I am not in the land of the rational. Understanding the role emotions are playing at any given moment can help mitigate their impact.
As advisers, we are incredibly valuable to our clients if we remember why we are really getting paid. Most of us are not paid to outperform the market but to help our clients make smart choices, especially when those choices are the hardest. No machine can ever replace the judgment and empathy required to help people make smart decisions, especially when emotions are flowing.
OPTIMIZING DECISIONS
Every good decision has three elements: truth (complete information), understanding (objective analysis) and discipline (deliberate action). Understanding when our judgment is being impaired is very important for our clients, and for our role as their guides.
When he wrote “The Republic,” Greek philosopher Plato pointed out that judgment and intellect needed to be in control of the insatiable appetites and desires of man in order to create harmony. That is a valuable lesson for us in good times and bad. Unfortunately, for the Greeks, regardless of their vote on the referendum, they will be paying for the bad choices of their past for decades to come. It’s our responsibility to help our clients end up in a far better place.

Joe Duran is chief executive of United Capital. Follow him @DuranMoney.