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How to Recognize and Respond to Client Anxiety

March 19, 2020 
By Joseph F. Coughlin, PhD

The three signs of investor anxiety and how you can help your clients manage it.

Financial Advisors: This article is based off of our popular Fear, Finance & the High Anxiety Client module. Click here to access additional content to share.

Joseph F. Coughlin, PhD
Director, MIT AgeLab

Market volatility not only affects portfolio balances, it can 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 emotions related to planning choices. How do high-anxiety clients behave, and how can a financial advisor actively address how they feel as well as how they invest? The answers to these questions can have lasting implications on your relationships with your clients.

Since the financial crisis in 2008-09, investors enjoyed the longest bull market in history.1 However, due to the coronavirus pandemic, volatility has reared its ugly head again. This pandemic has resulted in heightened fear and anxiety among investors.

How does client anxiety affect financial planning and the advisor-client relationship? While there are physical, emotional, and cognitive impacts, there are also behavioral dimensions that financial advisors should recognize and attempt to manage. Helping clients address their anxiety results in a deeper client-advisor relationship and helps clients more effectively pursue their wealth-management goals.

 

Three Behavioral Patterns to Watch for:

number1

Focusing Attention on the Negative

Anxiety-ridden clients are more likely to allocate their attention to information that is negative.2 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 who feel anxious will want more information about a recent jobs report showing a downward trend or will want to discuss the impact of uncertain foreign markets on the performance of the U.S. economy.

number2

If It’s Not Clear, It Must Be Bad

In addition to how anxiety-riddled clients allocate their attention, anxious clients also process ambiguous information 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 seems 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 being highly complex models, models of “future” performance are… well, models of what might be with varying degrees of confidence. A nervous client’s initial “gut check” will see that inherent ambiguity and margin of error, even with the best expert’s guidance, as a greater probability of a negative outcome.

number3

Risk Aversion: Just Don’t Lose It!

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?” versus “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 definitely 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 advisors 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, geopolitical tensions, climate change, and now a worldwide pandemic.

This pattern of events suggests that investor anxiety may remain elevated or even increase.2 Clients who no longer open statement envelopes or emails, ignore phone calls, or choose cash investments are perhaps the most anxiety-ridden, while those who still engage with their advisors or at least open the mail are still in a state of high anxiety.

Financial advisors 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

  • Discuss current events and family dynamics: Effective advisors know that keeping a client is about more than investment returns. Engaging the client in ‘small talk’ about current events and family news does more than maintain a relationship, it provides insight into how well your client is coping with market anxiety, and how they might be behaving in other aspects of their lives (e.g. career, family, purchasing behaviors, etc). These behaviors may indicate how much anxiety they are feeling and how active you need to be in helping them cope. Moreover, it’s an opportunity to show that you really care.
  • Point to the positive: While a continuing struggle, help clients see positive indicators without ignoring their discomfort or providing only Pollyanna-ish prose that may suggest possible ignorance or the inability to be realistic in a tough marketplace. For example, describe how one data point doesn’t make a trend or how one industry doesn’t shape an entire economy.
  • Become an engaging educator: Advisors must take more time to educate clients on more than products, such as the changing economic environment and it’s possible impacts on current investments and future plans. Rather than simply providing “more information,” it’s imperative to provide clarity—information in small, easy-to-digest elements, not long turgid prose. For example, leading hospitals and physicians now direct patients to interactive websites, videos, short documents, and creative multimedia to educate patients and families about a given chronic condition rather than a single letter, report, or discussion.
  • Provide informed insights about past and future patterns: Advisors should provide information that tempers negative stories or data and help clients see trends or think long term. Show how past cycles or events eventually came to a positive conclusion. Make the case for a diversified portfolio consisting of stocks combined with asset classes (e.g., fixed income) that may be seen as less volatile and less subject to global mood swings (e.g., commodities).
  • Facilitate action: Anxiety biases clients toward negative perceptions and inaction. However, taking action, even if it’s just a first conversation toward a comprehensive plan, often improves a client’s confidence and helps manage fear. A step-by-step approach to engagement will produce both an effective plan for the client and a means to cope and mitigate high anxiety.

 

Next Steps

  1. Download a PDF or order the advisor worksheet below: "Symptoms and Treatment for High Anxiety"
  2. Share our Media Replay content with clients concerned about volatility
  3. Get advisor tips for communicating during crises
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1This is now the best bull market ever, cnbc.com, 11/21/19
2Source: MIT AgeLab, 2016The MIT AgeLab is not an affiliate or subsidiary of Hartford Funds.

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