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Wacky to Wise in 6 Steps

Skip Navigation LinksFor my friends who do not receive the Journal of Financial Planning, below is my June 2016 article:

In modern society, money is the primary tool for survival, security, and satisfaction. In previous hunting, agrarian, and bartering societies, money was one of multiple sources of sustenance; today, it’s the source. Consequently, every primitive survival and pleasure-seeking drive is intensely focused on capturing and guarding money. These drives are involuntary and highly emotional—they emerge more quickly and forcefully than logical analysis, making it hard for people to be objective.

Even rational thinking is frequently unreliable. Daniel Kahneman describes two kinds of rationality in his authoritative book on cognition, Thinking, Fast and Slow. One makes rapid judgments based on learned patterns and sweeping assumptions. The other is intentional, slow, and difficult. Productive financial decisions require the second kind, but regrettably, humans avoid hard thinking. We much prefer to make quick, easy judgments, but this quick intuitive thinking is filled with biases we don’t recognize.

Given the plethora of unconscious drives and biased assumptions, especially about money, how can financial planners guide clients to more reasoned choices? First, be aware of the biases that arise from emotional instincts and intuitive thinking (these biases can be grouped under three categories: pain avoidance, appeal, and accuracy biases). Then, follow the six steps presented here to make better decisions.

Pain Avoidance Biases

Humans are wired to avoid pain with irrational intensity. As a result, we are susceptible to loss aversion and over-
estimation bias. Loss aversion is the experience of feeling losses two times more painful than the gratification of gains. Consequently, we avoid losses more aggressively than we pursue gains. In addition, the overestimation bias drives us to irrationally avoid highly unlikely negative events with one of the following characteristics: vividly traumatic; repeatedly communicated; personally relevant; or strongly emotional.

This is why some clients are overly fearful of another financial meltdown. The Great Recession fit not just one of those characteristics, but all four. It was traumatic, the media repeated the story incessantly, and clients personally experienced the impact with powerfully painful emotions. Constant reporting of recent market gyrations trigger a strong overestimation bias that another meltdown is coming and a powerful loss aversion drive to avoid it.

Appeal Biases

Not only do people irrationally avoid unlikely painful events, they are also swayed by positive impressions that lack credibility. The appeal biases create more natural, but faulty conclusions.

Individuals gravitate to things that are easy and attractive. Consequently, if it is appealing, we assume it must be true and desirable. As a result people:

  • Judge by ease of viewing over substance (fluency bias)
  • Believe just because it appeals (affect heuristic)
  • Focus on the story over credibility (Kahneman’s “what you see is all there is” or WYSIATI rule)
  • Believe a good first impression predicts the future (halo effect)
  • Believe only positive and reject negative evidence (confirmation bias)
  • Assign cause and value judgment (causality bias)

This is how clients are persuaded that the “sure thing” artfully displayed on television or described confidently by a colleague must be true. It looked good and there was early success; the promoters must be right, because it can’t just be an empty promise or random luck.

Appeal biases work negatively as well. Negative impressions are equally difficult to dislodge once established.

Accuracy Biases

Accuracy biases are the result of our preference for patterns and conclusions over fact. They lead us to:

  • Believe something just because it has been repeated (repetition bias)
  • Believe something is likely because it happened recently (availability bias)
  • Overestimate the truth based on few examples (law of small numbers)
  • Follow other people, regardless of personal relevance (herding)
  • Cling to old expectations despite new circumstances (anchoring)
  • Decide for current pleasures over future pleasures (affective forecasting error)

This is why clients are so panicked about inconsequential downturns. The news focuses on negligible drops, which reminds clients of other downturns, which proves the negative predictions, despite little evidence. Other people are acting, so clients feel compelled to act too. In addition, they may be fixated on protecting a perceived value. Moreover, clients can’t accurately predict how badly they will feel when an impulse decision leads to future regret.

The cascade of pain avoidance, appeal, and accuracy biases create a combination of intense feelings and unreliable conclusions that financial planners routinely face. Recognizing them is the first step. Then, six corrective steps can be employed to lead clients toward more thoughtful decisions.

Step 1: Predict Irrationality

Predict that human beings are frequently not rational decision-makers, especially about money. In psychology this is called normalizing. In effect, we take the surprise out of irrationality. It takes away the guilt and the feeling that there is something wrong when clients have a hard time being logical. Set the expectation that this natural faulty intuition will arise frequently, then explain how you will help avoid this risk. Clients will be more cooperative when they expect proactive intervention for a natural phenomenon.

Step 2: Listen for Emotions

Rationality is suppressed when emotions are high. When faced with an irrational client, listen for the underlying emotions—likely fear, anger, or both. Remember that anger may be a cover for feeling fearful. Don’t react to the anger. Instead, ask the client to describe their most important concerns. Often this will clear away misleading complaints and uncover the core fear that is driving the cascade of emotions. Rational decisions cannot be made until the irrational emotions are addressed.

Step 3: Acknowledge and Normalize

After the emotions surface, acknowledge the experience of the client by verbally reflecting what you hear. Do not agree with anything irrational or false. Instead, acknowledge how they feel. It is difficult for people to move forward until they feel heard. This is an opportune time to wholeheartedly validate their experience. After all, their experience is completely normal and expected. Then, reinforce your role in helping them sort through the feelings and facts to come to a thoughtful decision.

The key in these conversations is to show genuine concern and respectful humility. We encounter the same human fallacies, so we can certainly relate to their experience. After we reveal the emotions, we can acknowledge their experience and come alongside as a guide, and various tools can be used to develop a more reasoned way forward. The next three steps are useful methods for activating analytical thinking. These techniques elevate the client’s perspective out of the shortsighted perceptions that reinforce the most risky impulses and intuitions.

Step 4: Repeat the Big Picture

People routinely fail to remember the past. We are myopically focused on the limited evidence and feelings of the immediate present, especially when emotions are heightened. We need regular reminders of the big picture. Use graphics and visuals to put today into the long-term perspective. Given all the pain avoidance and accuracy biases triggered by daily media onslaughts, it’s not surprising that clients need frequent support. You will be less frustrated by the need to review again if you set your expectation that this is normal.

Step 5: Use Vivid Fluency

Make your points with easy-to-understand vivid graphics. People remember concrete images much better than abstract numbers. In addition, we feel good about things that are easy and dislike messages that are confusing or hard. Complex data presentations will likely make clients feel worse. Ideally, the adviser relationship will be a source of calm and comfort, not increased stress, otherwise, pain avoidance biases may emerge, leading clients to avoid their adviser. At every opportunity, use simple, colorful graphics to display information; seek to provide appealing clarity and comforting relief from anxiety.

Step 6: Visualize Future Feelings

People are very poor predictors of the impact of current decisions or future feelings. Therefore, we tend to pursue immediate pleasure over future benefits. To counteract the urgency of “now,” use images to portray the impact of today’s decision on tomorrow’s future, where possible.

Research has found that people save more for retirement when they are shown photos revealing a future of scarcity or comfort. When photos are not practical, have clients describe how the results of various decisions will look and feel in the future. Until people can picture themselves experiencing their future, they will focus more on obtaining immediate pleasure. Visualization of future feelings is also helpful when clients are overwhelmed with fear. The intense need to relieve anxiety today can easily lead clients to underestimate the feeling of future regret and the impact of impulsive decisions.

The challenge for financial advisers is to recognize and productively guide clients away from impulsivity and toward rational thinking, which goes against human nature. Fortunately, good tools will shift the perspective and illuminate a productive path forward.

by Barbara Kay, MA, LPC, RCC 

Journal of Financial Planning – June 2016

Article reprinted with permission by the Financial Planning Association, Journal of Financial Planning, June 2016, by Barbara Kay, MA, LPC, RCC, From Irrational to Rational: 6 Steps to Guide Clients to Productive Decisions. For more information on the Financial Planning Association, please visit or call 1-800-322-4237.


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4 Solutions to Avoid “The Graduate” Trap

Spring is college graduation time and a launch into financial independence, a celebration tuition-weary parents eagerly anticipate.  Unfortunately, while parents may be eager to be free of financial burdens, graduates may not be equally eager to assume them.

Launching a graduate into independent adulthood can be a difficult transition filled with conflicting expectations and  mutual disappointments.  Now is the opportune time for parents to avoid the following traps with 4 productive solutions.

Trap:  Humans love anything FREE or EASY. It goes against human nature to pay more than necessary It’s unlikely graduates will immediately and voluntarily give up the support they have relied on their entire life.

Solution 1:  Don’t assume the graduate will cheerly embrace financial independence.  Assumptions create an invisible list of expectations the graduate will not be able to magically discern, greatly increasing the likelihood of disappointment and conflict.  Remember, it is the unusual graduate who will voluntarily embrace the burden of paying for everything on their own immediately.  Nothing about this is automatic, for the parent or the graduate, don’t expect it to be and everyone will be much less stressed.

Trap:  Children are trained to be “takers”.  Parents are normally the material “givers” in the relationship, even through college with a pseudo-adult lifestyle.  Many graduates are used to privileges without cost.

Solution 2:  Discuss and clarify new expectations following graduation.  Talk openly about goals for healthy independence and each other’s expectations in this new stage. Honest and respectful communication is critical to a productive  transition.

Trap:  It’s SCARY!  This may be the first time graduates take on full adult responsibilities. Unlike school, there is no clearly outlined path to success.  Frankly, it’s scary!  Many will apply to graduate schools, remain living at home or stay under-employed because they feel inadequate or fearful.

Solution 3:  Acknowledge the difficulty of this new stage.  Talk about how you can help the student move forward with productive support and clear accountability.  A supportive safety net will minimize paralyzing fear.  Equally important, concrete accountability will protect against comfortable complacency.

Trap:  Many will feel poor.  As new graduates pay for rent, transportation, utilities, school-debt and life they may feel over-stretched.  Feeling poor is not the same as actually being unable to pay for basic needs.  It’s difficult to give-up daily luxuries that never felt extravagant, when bought by someone else.  Given the lavish amenities at colleges today, a thrifty lifestyle is an adjustment.

Solution 4:  Resist the pull to validate beliefs that are NOT based in fact.  You can absolutely acknowledge the disappointment a new grad feels about a less luxurious lifestyle, without agreeing to a false belief that they ”can’t pay their bills”.  Instead, offer guidance on budgeting.   During the transition, it’s helpful for parents to decide what they will financially support and communicate clearly what a new grad can expect over time.  It’s equally important to discuss how you will aid the new grad in the event of a true financial emergency.  Giving a young adult a “hand up” is not the same as funding continual “hand outs”.  Defining the parameters of the ”hand-up” will alleviate anxiety for everyone.

Ongoing dialogue about changing expectations with clear measures of both accountability and support will go a long way to making the graduation celebration continue as a celebration of a productive independent adult life.

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Is your Brand Turning OFF 50% of your Prospects?

Today, I stumbled on a professional consulting website that is overwhelmingly masculine.  Clearly the business does not intend to work with only men, but their website will absolutely turn-off women, perhaps men too.  The branding impression is that: “We’re aggressive guys, we only understand aggressive guys, we’ll treat everyone like they’re an aggressive guy and our consulting will be aggressive guy tactics!”

I’m confident that the business does not intend to turn off half of their prospects, but given that women hold 51% of all the professional roles in the U.S. that’s exactly what they’ve accomplished.

Let’s learn from their mistake!  Take a good hard look at your website and marketing material and ask yourself some pointed questions:

  1. What images are displayed?
  2. What words are used to describe your services?
  3. What do your clients & fans think?
  4. What kind of brand image do you want to display?

Branding is an art and there are many interpretations of good branding.  Be prepared that marketing professionals will have diverse opinions.  You may feel confused by not getting a definitive right answer. I’ve been researching branding for years and I’ve still not found the ideal brand formula.

But you know your niche and clients better than anyone.  Listen to your advocates, clients, and your own interests for image in the marketplace.  Be confident in pursuing that look.  Branding is supposed to reflect the real you!

If you’d like to boost your brand personality* (a branding term for image in the marketplace) check out these branding worksheets which includes the Brand Personality Dimensions:  Maximize Your Brand

The website that I found today had a singular brand personality: Ruggedness which is masculine, tough, rugged, outdoorsy  & western!  It’s doubtful they intended to create this image for their professional consulting business.  Most likely, they were not intentional about their brand personality.

Since we have 6.5 seconds to make an impression (according to leading ad agency FCB) it’d be ideal to be intentional. What’s your brand personality?  Does your website display it well?  Does it appeal to all your prospects?

By the way, that website is not linked here, because that would be worthlessly snarky and embarrass this business.  Since, I spend my days helping people grow positively, nastiness goes against everything I stand for in work and life.

* Brand Personality was pioneered by Jennifer Aaker in her seminal article: Dimensions of Brand Personality




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Politics, Sex & Money

Here we go again!  Every election cycle seems to get more colorful than the last.  Why?  One reason is the focus on OR rather than AND.  The candidates advocate for this group OR that group.  It’s politics of you OR me, but not both.

Now financial services increasingly targets special groups, specifically women.  New products and services are popping up, exclusively for women.  They focus on ethics, values, transparency, clarity and ease of use for women investors.  That’s great!  It’s a vast improvement.  But, let’s not have a win for women and a loss for men.  What’s good for women investors, should help men too!  Why should men have to deal with obtuse and convoluted investments?  

OK, you laugh now, because I wrote the groundbreaking book on reaching women investors and speak nationally on this very important topic.  Am I a hypocrite?  No!  It’s very important and I applaud innovations for women AND for men.  We’re all important.  Good innovation is not for you OR me.  It benefits everyone!

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6 Tips to Calm Clients in Volatility

The markets are gyrating.  We’re dizzy & confused.  So are your clients.  Below are behavioral psychology tips for keeping clients calm:

1) First, Calm Yourself:  Up to 90% of communication is non-verbal.  Clients will notice any anxiety you feel.  Watch your speed of talking, breathing & pitch of voice.  Rapid speech, quick & shallow breathing and a change in pitch signals anxiety, no matter what your words are saying.  Get your Zen on – before talking to any clients.

2)  Listen for Emotions:  Rationality is suppressed when emotions are high.  Listen for the underlying emotions (likely fear and/or anger).  Ultimately, you’re talking to the emotion that’s driving everything else.  Remember that anger is often a cover for feeling vulnerable or fearful.  Don’t get triggered by anger.

3) Acknowledge:  Make sure to acknowledge (verbally reflect a summary of what you hear).  Do NOT agree with anything irrational or false. You can acknowledge emotional concerns without acknowledging false assumptions. Until people feel heard, they will keep repeating and may escalate emotionally.

4) Normalize:  Normalizing an experience is a powerful psychological tool.  Share your knowledge of history and market fluctuations.  Honestly and factually put things into a bigger perspective.  Normalize the experience and the feelings.

5) Show Your Value:  This is exactly your value.  This is the moment you show why clients need a human professional (not a robo-advisor).  Doctors don’t diagnose or treat themselves.  They can’t be objective.  For the very same reason, it’s a bad idea for investors to diagnose and treat their own investments.  While attending to their feelings, show them the way forward.

6)  Be Prepared to Repeat:  Stress makes humans stupid (medical fact) and strong emotions will repeatedly trigger anxiety.  Be ready to repeat the calming process more than once per client.  You’ll be much less frustrated when you expect to repeat.  Remember the panic driven media plays 24/7.  Clients may need several rounds of calming tonic.  Remember, that’s your value!

PS:  Get support to maintain your own calm.  That’s the value of your Coach!

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