You might have noticed a heightened sense of uncertainty in conversations with clients recently. Despite a robust bull market, the last few years of higher prices, mortgage rates, and a new federal administration combine to create doubt and indecision. The American Banking Association reports that 80% of all consumers are experiencing high rates of financial anxiety.
Financial anxiety is real, and it’s one of the major drivers of relationship issues and mental health conditions. Some stressors are situational, while others are rooted in the client’s deep-seated beliefs and early impressions of money. Keep in mind that while your existing clients may have significant resources, that does not mean they have lower levels of anxiety.
Now, add into this mix a new generation of younger consumers who might have never invested before or have not worked with a financial advisor previously. Wealth transfers between generations will be inevitable, with nearly $80 trillion in accumulated wealth by the baby boomer and silent generations. Most of these resources will move between grandparents and their children or grandchildren. Advisors will have the opportunity to see new clients and develop new relationships—some will be positive, and some will be negative. New interactions, and especially those involving unfamiliar topics like money, can bring a tremendous amount of anxiety, and this, in turn, creates friction for your new client-advisor relationship. Those new clients that find themselves in unfamiliar territory or have uncontrolled anxiety, may find a way to move their money elsewhere. How can advisors better manage this? Seek to bring clarity and mitigate money anxiety.
As financial advisors, we’re taught to understand the client’s complete financial picture before offering advice. Historically, for many of us, this means assessing quantitative information about finances and only briefly touching on other qualitative metrics, like estimates of risk tolerance. Behavioral finance has introduced more tools, including questionnaires about money beliefs and behaviors. These instruments are all effective, but there are other ways advisors can start to integrate psychology into their practices.
Consider adapting your approach. We each have different styles, with some advisors being more analytical or performance-oriented while others are more relationship builders. Your new generational clients will come into the advisor-client relationship with a host of other things on their minds. For many, this bequest or transfer represents a sizable gain and quite possibly their only investable wealth. But it also comes with new challenges: what do I do with all this money? What are my options? How much of it should I spend now or use to pay off my debts? What if I blow it all?
Helping new generational clients address all their initial and ongoing anxiety is essential to winning and maintaining their business long-term. If you’re not already, incorporate a variety of assessment tools—including investor styles, decision-making patterns, and risk tolerance tools—to help you assess styles. The Klontz Money Script Inventory can also be useful.
From there, it’s all about communication, discussing fears and goals openly with the client. Adapting from a sales orientation to a more therapeutic style can improve the client experience.
Financial therapy is a new field that blends financial advice with behavioral science to improve financial well-being. Not everybody needs to do this, but for those clients with high anxiety, adapting your style to a more therapeutic approach could help reduce some stress.
These are guiding conversations, which are more insightful through the use of probing questions to get to the root of anxiety. If you change the way you phrase questions, you will get more authentic responses.
So instead of saying, “What is your level of risk you’re comfortable with?” how about “Describe for me your biggest concern or fears about your money or investments?” Or ask, “when did these fears first emerge? Are there things you have found useful to help reduce these fears?” Using open-ended questions and listening more can also help.
New generational clients will bring anxiety, uncertainty and change to your practice. Be ready for this by adapting your style and your practice accordingly.
James Langabeer, PhD, ChFC is a behavioral financial advisor, author of The Quest for Wealth: Six Steps for Making Mindful Money Choices, and managing principal at Yellowstone Wealth Advisors, LLC.