When clients freak out, second that emotion: Expert

When clients call in a panic over a market scare, advisers might be tempted to dismiss those fears and get them to focus on the big picture. But that would be a big mistake, according to Denise Shull, who has researched the role emotions play in trading behavior. “In Western culture we try to set aside emotion,” she said. “When we are working with clients, if they are fearful, we try to calm them down, but after a volatile day, it is self-protective [for them] to feel fearful and anxious.” Many studies have indicated that people need to recognize their feelings to make good decisions, Ms. Shull said. Trying to ignore the brain's warning signals just makes the signals get louder, and probably will result in even-more-frequent calls from clients who don't feel that their concerns have been resolved, she said. Ms. Shull worked as a trader for a decade before founding the ReThink Group Inc. a consulting firm that works with advisers and traders on using emotion science to improve performance. Her book on the topic, “Market Mind Games” (McGraw-Hill, 2011), was published last week. Ms. Shull suggests that rather than asking why clients feel the way they do, ask them what is happening that is making them feel that way. “The word ‘you' makes them defensive,” she said. “When the object is the stock, the CEO, the time frame, something other than ‘you,' it doesn't put them on the defensive.” When people talk through their feelings, it makes it easier to avoid bad trading decisions and they are better able to relate it to a longer-term perspective, Ms. Shull said. For clients who are set on making a momentous decision based on fear, such as cashing out a stock holding, she suggests telling them to take some time doing something else before making a final decision. “Research shows that complex decisions are best made non-deliberately, meaning, don't be staring at the data,” Ms. Shull said. Persuading clients to sleep on a decision may take some time at first, she acknowledged. “It sounds like it will take an adviser longer to do this, but once they get comfortable doing it, it will take less time,”Ms. Shull said. “Clients will learn to become calmer quicker.”