Welcome to Financial Advisor IQ

Here’s How You Manage Clients with Irrational Fears

May 4, 2018

This time we hear from Elizabeth Buffardi, president of Oak Brook, Ill.-based Crescendo Financial Planners. She talks about how a bad experience taught her to take clients’ fears seriously.

Before I started my own firm, I worked for a very wealthy family. There was some separation between the husband’s and wife’s finances, and part of the challenge for me was juggling multiple accounts and two very different personalities. The man ran hedge funds and was a mathematical genius, while the woman was very intelligent but didn't have a mind for numbers.

Early on in our relationship I discovered the woman was keeping an enormous sum of money in a savings account. I strongly advised her to invest the money but she told me she didn't want to. I explained to her how much growth she was missing out on. She said, "You can't have it. It's my money." She repeated that line over and over: "It's my money."

It didn't make sense: her husband managed hedge funds. I was so baffled that I told him about the account and he had the money taken out and invested in stocks and bonds. Of course the money grew at a much faster rate, but the woman was so upset she wouldn't speak to me for a year. Later, when our relationship had healed, she explained that her mother had grown up during the Depression and had always told her that no matter what happens you need to have some money that's yours and yours alone. That way no matter what happens you can take care of yourself. I realized that from this woman's perspective I'd actually taken her money away from her.

I thought about this woman when I took on the first clients at my own firm – a couple that earned a lot and saved well, leaving them with a lot of cash to invest at the end of every year. At our first meeting I asked them about their goals and after we discussed those I asked them about their fears. The woman told me that while she realized that on paper they were doing great she had a terrible fear that she was going to run out of money. She couldn't explain where this fear came from but sometimes it was paralyzing, she told me.

Fast forward a couple of years and I'm working on their investment allocation. Based on their financial situation I calculated that an aggressive 70/30 stock/bond ratio would work well for them, but I suspected that wouldn't sit well with the woman, so I ran the numbers for a 60/40 allocation as well. When I presented the two allocations to the couple I explained that I included the less aggressive model because of what the wife had told me at our first meeting. The needle sort of scratched across the record when I said that. She looked at me and said, "You remember me saying that?" I told her I'd written it down in my notes. She was floored. I could tell how much she appreciated it. And in the end the couple did, in fact, choose the more conservative allocation.

I'd learned from the wealthy family I worked for years ago to take the fears of clients seriously, even if they weren't rational and even if they prevented the client from earning a little more. Now I make a point to ask what clients are worried about the first time I meet with them. Some people will respond well to reasoned arguments for more aggressive investing but others aren't able to get over their fears. And that's okay. Part of my job is to help my clients sleep better at night. If that means investing more conservatively, I should be willing to do that.