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Pay Attention to Your Emotions

November 4, 2016

This time we hear from Holly Thomas, founder of Tampa, Fl.-based Holly P. Thomas LLC. She recalls how her graduate studies came to life in her practice.

A few years ago I decided to pursue a Master’s degree in economics, with a focus on behavioral economics. Behavioral economics incorporates elements from psychology to understand the economic decisions that people make. I didn’t realize it at the time, but those classes would pay big dividends in my business.

Younger planners always ask me how behavioral economics has informed my work. Two cases always come to mind. In the first, I was still a private banker in the ultra-high-net-worth market. A potential client — a family that was unhappy with their broker — was referred to me because they were seeking a change. I thought they were a lock. That was my first mistake. When I spoke with them I immediately began to focus on myself and my team. Did I think much about the client and their needs? No.

We gave one presentation, then another, and then another — always focused on us and our resources and skills — and received no answer. I was frustrated. Finally, we got the news that they had decided to go with a hometown broker, someone the family had known for years and who was unknown to us. I was so focused on my own team and our certain success that I hadn’t even asked whether they were interviewing other candidates.

I felt like I had been punched in the stomach. I was shocked and heartbroken at this turn of events and had a hard time explaining to my colleagues what had happened.

A few years later, after I completed my studies, I heard from a potential client who had received a personal injury settlement. She was a young woman who was brilliant at her profession but was unable to continue that work. In addition, it was possible she would have to depend on that settlement for the rest of her life. So she had to make prudent, yet somewhat aggressive, choices – and all this happened during the financial panic of early 2009.

Holly Thomas

Since I don’t manage money, I walked her through an RFP process to choose an investment manager. After many meetings, she was finally convinced that she needed stocks in her portfolio if she was going to get the lifetime returns that she needed. Finally, when she was about to commit, I got a rare phone call from her on a Saturday. She said she had talked to people, read articles and listened to experts, and they had all convinced her to stay out of the market. The depressed market “proved” that stocks were too risky. She had changed her mind.

Needless to say, I did not agree. I was exasperated: All those discussions and all that planning for nothing? My natural reflex was to engage in a counterargument with her. But my work in behavioral economics told me that such an argument would only solidify her position. It also told me that the fear my client was experiencing was the most important driver in this case. Her response was not rational; it was emotional.

So I zipped my lips and let her vent her fears. Eventually I asked her a simple question: When everyone tells you to sell, when the herd mentality has taken over, what should you do? There was a very long, uncomfortable pause, and finally she said, “Buy.” It was her decision, not mine.

Of course, the market rebounded right after that and her decision proved very profitable. Did I know the market would turn right then? No, though I was certain it would bounce back eventually. But the point here is not market timing; it’s about the psychological relationship that people have with money — and not just clients, but planners, too.

In the first case, I was so focused on winning a client that I forgot about the client. Some simple questions that put their needs first would have made a big difference. In the second case, I was much more aware of the psychological dynamics at work—both in my own mind and in the mind of my client. And that awareness was key to getting the right outcome.

Bottom line: People like to think that they are rational about money decisions, but they are often emotional — and that includes planners. Being open to those emotions will pay off for you and your clients.