The market isn’t simply a barometer of the economy. For most investors, it’s also a symbol of their unique goals and dreams. The market symbolizes a lakefront vacation home, or a child’s college education, or the freedom to eventually retire comfortably.
It comes as no surprise, then, that every time the market dips, clients aren’t just worried about the performance of their portfolio. Though they may not admit it, they’re probably wondering, “Am I going to be okay?”
Research suggests that around 90% of investment decisions are driven by emotion. Investors react emotionally when it comes to their money. Advisors who understand this are better poised to effectively guide their clients when emotions take over.
Our brains are naturally wired to pay attention to bad news. When we encounter negative headlines, our neural activity increases, making us more vigilant than with positive headlines. It’s difficult to make sound financial decisions when reacting emotionally.
At the first sign of market volatility, the media typically goes into doom-and-gloom mode. Attention-grabbing words like “recession,” “crash,” or “correction” are thrown around, and suddenly even seasoned investors start to feel like they need to act. It’s an emotional response to evolutionary brain activity.
Countering emotional impulses with logic can sometimes help transition clients into a more reasonable conversation. For example, if a dip in the market prompts your client to call you in a panic, convinced that they need to pull all their money out, explaining “The 10 Best Days” phenomenon can show how rash decisions might negatively impact clients.
Most investors are shocked to learn that, historically, the best days of the market have typically shown up right after the worst days of the market. Missing the 10 best days of the market over a multi-decade period can have a significant impact because returns can be cut by more than half.
Revealing to clients that staying invested during market volatility can help to avoid potential loss might be the guidance that helps clients see the bigger picture instead of myopically focusing on alarmist headlines.
“It’s not about timing the market; it’s about time in the market” isn’t simply a cliché. It’s a simple explanation of the solution to emotionally driven investor panic.
Long before “behavioral finance” was a buzzword, most financial advisors already knew that managing the emotions around money is the core of our craft:
Throughout my career, I’ve realized that the families who end up in the best place aren’t the ones glued to every market move; they are the ones who reach out when they’re anxious and talk through what they’re feeling before they act. They still worry like everyone else, but they’re not making decisions alone.
That emotional guidance is where we, as advisors, truly earn our fees.
Growing your practice is also about building a community of clients who value your insight. A few years ago, during a major market dip, a client said, “I want everything in cash now.” After walking them through the risks, they dismissively said, “You can just tell me when to buy back in.”
At that point, I knew the relationship had run its course. If someone isn’t willing to take the advice they’re paying for, then as an advisor, we’re not doing them any good.
Letting go of clients who aren’t the right fit creates space for those who are, and that shift has allowed us to grow exponentially and joyfully with people who value the relationship and the guidance we provide.
Advisors create impact not by eliminating volatility, but by helping clients change how they respond to it. The market will move up and down, but what we can influence is whether clients panic and make costly, emotion-driven decisions.
The problem isn’t that the markets fluctuate; it’s that investors flinch when they do.
Clients are naturally going to feel fear, excitement, and doubt. We shouldn’t discount emotions when we can instead use them as an opportunity to encourage open communication, so those emotions don’t turn into decisions that hurt their future.
Larry Sprung is founder and wealth advisor at Mitlin Financial, an indepedent advisory practice based in Hauppauge, New York.
Zocks has inked an exclusive partnership with mega-RIA Hightower, while Jump becomes the choice AI operating system for Equitable Advisors' field force.
The agency's proposal to rescind the contentious 2024 Biden-era mandate opens up a 60-day public comment period.
The Carmel, Indiana RIA grew nearly 150% in assets since severing ties with its first backer following a FINRA dispute.
Meanwhile, Raymond James' employee arm adds a defector from D.A. Davidson, and South Carolina-based RIA Ballast Rock Private Wealth recruits a new advisor.
A FINRA arbitration panel sided with a former wealth manager fired over a $642 deli platter and a disputed client event.
As $84 trillion prepares to change hands, advisors who treat estate planning as peripheral are quietly building a sieve, not a book.
In volatile markets, the advisors who win aren't the ones with the best calls - they're the ones whose clients stay the course.
