Market volatility not only affects portfolio balances but can also significantly increase client anxiety. While building a retirement plan and optimizing an investment strategy may be the best way to rationally ensure financial security in an uncertain environment, client anxiety impacts client emotions that affect planning choices. How do high-anxiety clients behave, and how can a financial professional actively address how they feel as well as how they invest? The answers to these questions can have lasting implications for your relationships.
Volatility can strike at any time. And when it does, constant reports of “bad news” can result in heightened fear and anxiety among investors.
How does client anxiety affect financial planning and the financial professional-client relationship? While there are physical, emotional, and cognitive impacts, there are also behavioral dimensions that financial professionals should recognize and attempt to manage. Helping clients address their anxiety results in a deeper client-financial professional relationship and helps clients more effectively pursue their wealth management goals.
Three Behavioral Patterns to Watch for:
A step-by-step approach to communication will produce both an effective plan for the client and a means to mitigate high anxiety.
Anxiety-ridden clients are more likely to allocate their attention to negative information. Given the choice between information that may support an optimistic interpretation of events or data that paints a dour future, the anxiety-influenced client will choose to focus on threatening information. In some cases, they may even seek negative information to support their growing belief that poor results are the likely outcomes of nearly any action. For example, rather than seeking to learn more about a firm or a fund that has growth potential, consumers feeling anxiety will want more information about a recent jobs report showing a downward trend or to discuss the impact of uncertain foreign markets on the performance of the U.S. economy.
In addition to how anxiety-ridden clients allocate their attention, anxious clients also process alternative viewpoints or complex issues differently. Data that are not crystal clear are more likely to be seen as bad or even threatening news. And what can be more ambiguous than the “future?”
Even when the economy is thriving, the media seem to delight in finding a reason why the good times won’t continue. Positive economic reports are often downplayed in favor of the not-so-bright side. Is it any wonder why investors are left feeling uneasy?
Financial planning is inherently ambiguous. Despite their inherent complexity, models of “future” performance are… well, models of what might be with varying degrees of confidence. A nervous client’s initial “gut check” will interpret that inherent ambiguity and margin of error, even with the best expert’s guidance, as a greater probability of a negative outcome.
Social and behavioral scientists refer to how alternatives or issues are presented as “framing.” For example, consider these two questions you could ask a client: “Would you consider moving to a different state in retirement?” vs. “Which state are you considering for retirement?” Both questions address the same issue, but the first is more passive and leaves open a range of possibilities for retirement living, while the second implies that the client is moving—only the destination is uncertain.
Clients trying to manage anxiety are more likely to “frame” their objectives from a fear or heightened loss-aversion perspective. In short, a client that is wrought with anxiety is trying to mitigate risk, not plan for the future.
Therefore, they will ask questions or assess possible strategies with expectations based not on financial objectives or future life plans, but on fears felt today. A common dictum by today’s client is “Just don’t lose it!” rather than “How do we grow it?”
Expect Anxiety to Remain High
Just as a good doctor knows how to treat the whole patient, rather than just a condition, financial professionals must be prepared to actively address how their clients feel as well as how they invest. Client anxiety has remained high because of things such as political dysfunction, climate change, and a pandemic.
This pattern of events suggests that investor anxiety may remain elevated or even increase.1 Clients who no longer open statement envelopes, ignore phone calls, or choose cash investments are perhaps the most anxiety-ridden, while those who still engage with their professionals or at least open the mail are still in a state of high anxiety.
Financial professionals must acknowledge this continuing fear in the marketplace and seek opportunities to check in with clients to show they care. They can help clients and their families cope by developing new narratives and tools to explain market realities to counter negative bias, and by offering products that respond to their clients’ needs to balance risk with growth.
How to Help Clients Manage Their Anxiety
|1||Download a PDF or order the financial professional worksheet: "Symptoms and Treatment for High Anxiety"|
|2||Share our Media Replay content with clients concerned about volatility|
|3||Get tips for communicating during crises|
1Source: MIT AgeLab, 2016. The MIT AgeLab is not an affiliate or subsidiary of Hartford Funds.
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