Advising Clients with Painful Money Legacies

Advising Clients with Painful Money Legacies

Financial setbacks are remarkably common. Events such as marriage break­up, illness, job loss, and business troubles happen every day, and often bring with them significant financial loss.

But as commonplace as such events might be in the general population, they are not commonplace for any given person. These events land in the life of any given individual with hurricane force. They become psychological reference points, demarcating B​efore f​rom A​fter.​ What happens in the After​ portion largely depends on a combination of p​ersonal resilience and access to supports and resources.​ And that’s where gifted advisors can make all the difference.

Here’s what great advisors do:

1. Help clients prioritize and simplify.​ If the reversal of fortune is pending or is still underway, then the client is apt to be acutely distraught. Such distress often leads to cognitive compromise, such as hyper­focusing on one or two things while ignoring others; becoming frozen into activity; frantically trying to attend to every eventuality; or losing sight of the “big picture”. Experienced advisors know that regrettable actions are more likely during periods of heightened grief, fear and anger, and they take steps to prevent any such actions. They make a point ofh​elping clients identify the relatively few pressing matters that must be attended to immediately.​Then, they create flexible time frames for getting to the lower priority items.

2. Refer and collaborate.​ One of the most valuable things that excellent advisors possess is their extensive referral network. The more readily people can access supports in a timely manner, the better their odds of successful recovery. Unfortunately, clients who feel that their lives are being blown apart do not always have the energy or the wherewithal to locate and vet new service providers. Excellent advisors can save clients time, energy and further setbacks simply through making thoughtful referrals to ethical, competent professionals. (A word to the wise, though: B​e sure to follow up with your clients to ensure that the referral was a suitable one.​Be prepared to suggest alternatives if the fit was not a good one.)

3. Help people achieve a healthy and balanced New Normal. ​A broken bone may not heal optimally if it is not set skillfully; similarly, financial setbacks can result in lasting problems if not addressed properly. Some of the more unfortunate scarring results from the phenomenon of loss aversion, whereby painful experiences have twice the emotional intensity of positive experiences.​Loss aversion can lead people to extremes of excessive risk or caution ­­ not just in investing, but also in relationships, career choices, etc. Clients benefit from being educated about this vulnerability. Such education helps them, in turn, to disaster ­proof their futures by giving more careful consideration to such things as adequate insurance coverage, prenuptial agreements, and appropriate risk tolerance in investment portfolios.

Reversals of Fortune need not be permanent, and need not be scarring. Indeed, they can be a launching pad for tremendous growth…and advisors can be there to contribute to that growth.

If you’re interested in learning more about this topic – here are some great resources for you and/or your clients:

1. Scarcity,​ by behavioral economists Sendhil Mullainathan and Edar Shafir. Through a variety of engaging experiments, the authors demonstrate conclusively that financial stress lowers intellectual functioning. They have a host of helpful ideas on how to help clients who are in a depleted state.

2. The C​ertified Financial Transitionist​ program at The Sudden Money Institute. Founder Susan Bradley offers in­depth training on the nature and effects of life transitions, turning advisors into trusted thinking partners.

3. My own forthcoming book, T​he Advisor Who Gets in the Way. ​ Learn how to avoid mistakes commonly made by well­ intentioned advisors. You can email me if you’d like to be notified when it’s published.

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