The markets are gyrating triggering the worst human biases. Read on for three bias-savvy techniques to keep clients on the right track.
Pivot from Panic to Patient
Psychological studies show felt urgencies twist our perceptions. Relevant facts are ignored in favor of daily impressions. Sadly, local and national gossip is driving your client’s viewpoint.
This biased intuition is hard-wired. Unfortunately, we can’t change the nature of the human brain. But we can work with cognitive bias, using natural forces for client benefit. Three bias-savvy strategies are particularly relevant today.
1. Stay in Front of Clients
Recency, availability, and repetition are just three of the biases that delude people into poor decisions. These drive clients to focus heavily on immediate news. Sadly, the 24/7 media coverage is driving the agenda. The power of your personal attention and your relational credibility is an essential corrective. I know you’re already doing this. Keep it up, your client’s minds are being flooded by bias. They need someone to offer a different perspective.
2. Make the Future Real Now
A recent Morningstar study found the majority of the respondents held a very short-term view of their finances. A few months was the limit of their financial projections. In addition, psychologists have discovered the depth of human forecasting errors. In short, people do a very bad job predicting the future consequences of today’s actions. As a result, humans are incredibly biased toward satisfying immediate urges, while dismissing the long-term impact. You see this daily with clients who won’t engage in productive planning.
The bias-savvy solution is to make the future life experience real, now. Charts and graphs are too conceptual. Instead, describe the impact on the client’s daily living, concretely and practically. They need to feel tomorrow’s experience, like they’re feeling today’s experience.
To take it a step further, ask clients to recall stories of past short sighted financial decisions, theirs or others. The more detail they recall, the more powerful the motivation will be. When the vivid picture of pain is remembered, clients will be more even more motivated to avoid a similar fate.
3. Redefine Caution as Action
Humans despise waiting in ambiguity. In addition, human bias completely distorts decision making. Overt actions feel proactive (Yes! we’re doing something to protect my assets), while waiting feels passive (Oh NO! we’re not doing anything to protect my assets). As a result, more than one advisor has felt pressure to make ill-advised changes, so clients feel like they are doing something.
The solution is to redefine patience as a proactive strategy. The SMART goals approach (specific, measurable, relevant, timed) can provide the client with a plan of action, even if the “action” is to wait. When the client has a detailed plan that identifies “waiting” as an active decision, the pressure will diminish. Moreover, the SMART approach allows you and the client to decide how long to proactively wait. They’ll feel relieved that they are doing something, that waiting is an active strategy, and that there will be opportunities to adjust, as events unfold. You’ve just turned uncomfortable ambiguity, and anxious waiting, into a positive and productive strategy.
Now Pivot from Patient to Planning
These steps re-direct biases to benefit the client. Even better, they activate the executive function in the brain. This region controls impulses, analyzes, and plans for the future. The client needs the executive function to overrule the biased feelings. The more you dissipate the panic feelings and strengthen the patience, the more executive function will wake-up and be able to plan. The bias-savvy strategy is to keep pivoting the client from panic to patient, then from patient to planning. Good luck, I think we’re in for a wild ride.
And….don’t hesitate to contact me. Every situation is different. I’d be delighted to collaborate with you on a custom strategy.