Getting through to confused or fearful clients

I think the most satisfying moments of operating an advisory practice occur when a client who has been feeling confused or fearful suddenly “gets it.” Sometimes the adviser has to change his or her approach, as though the client’s brain circuits need to be approached from a different angle and then rewired in order to get past a sticking point.

Eileen started with me in 2004, when she was in her late 60s. We determined that she needed about $1 million to support her retirement. She had just over that amount and didn’t plan to retire immediately, so she was happy and I wasn't worried about her. I moved her to a somewhat more conservative allocation since she didn’t need to be too aggressive.

Over the next few years her investments grew nicely, to about $1.3 million. Then came the 2008 crash, which naturally took a bite out of her portfolio. She was back down to a little over $1 million, around where she had been when we started. And she was upset — distressed, really — about having lost money. She kept saying that to me: “I’ve lost over a quarter of a million dollars!” 

I tried all the usual rational approaches. I explained that this was just a theoretical loss. That her $1.3 million had just been a paper number. That investment values fluctuate, sometimes drastically. That we had cushioned her loss by restructuring her investments. That things would bounce back.

No good. She had still lost over a quarter of a million dollars and nothing I could say would change that.   

I decided that I needed to shift gears. “I’d like you to do a thought experiment with me,” I said. “Imagine you started with that same $1-plus million but suppose it had grown all the way to $2 million — and then fell back to where it started. Which way would you be worse off: Having lost a quarter of a million or having lost a whole million?”

She puzzled over this for a few moments. Then she smiled. “It doesn’t matter what I lost,” she said. “Either way, I’ve got $1 million left.    

“Exactly!” I cried, delighted. “And you do have a million dollars left and we’ve already calculated that’s enough for you to retire, so you’re all set.” Success! She didn’t retire for a few more years; by then her numbers were back up.

[More: Encouraging clients to invest in their dreams]

Unfortunately, this gear-shifting approach doesn’t always work. A couple in their 50s came to me for retirement planning. They didn’t want me to manage their money, just to review their investments and suggest improvements. Harold was in a target-date fund in his 403(B) at work and had a lot saved up, so I wasn’t concerned about his allocation or about his progress toward retirement. 

Angela had small pockets of money in several taxable accounts and in various 401(K)s and IRAs from an assortment of jobs she had held. When I asked her how she had picked her funds, she said she didn’t really know. “Someone would recommend something, so I’d buy it.” 

It was a hodgepodge of different kinds of funds at various companies, but when I put them together in my portfolio software, I was surprised to find that all together they made a nice portfolio. By chance, apparently, Angela had ended up with a good stock-bond allocation and a good mix of types of mutual funds. Her portfolio returns had been good and her volatility reasonable. 

I thought she would be pleased, but to my surprise, when I explained all this to her at the next meeting she was quite unhappy. Angela insisted that since she hadn’t known what she was doing when she bought the funds, they couldn’t possibly be good and there had to be improvements I could recommend.

I walked her through my analysis in more detail and she started getting upset. She repeated that her portfolio couldn’t be good and that I needed to give her a better one. I explained that I was reluctant to have her make changes if she was going to continue managing on her own. I could certainly recommend different investments, but I didn’t think they wouldn’t give her a better portfolio. 

Belatedly, I realized that she was making an emotional argument and I was giving a rational response, so we just weren’t communicating. I needed to shift gears and meet her where she was, in order to make a connection there. This is textbook strategy for building rapport with clients: Respond to the emotional content of the client’s statements in kind and not with facts and arguments.

I sat back, consciously softening my body language. “I can see that you’re upset about this,” I said. “I feel bad that I’ve distressed you.” I kept on with a totally emotional, personal approach, nothing factual, looking to reengage, trying to show that I understood her and waiting for the breakthrough connection that I anticipated would follow from my shift in style.

Unfortunately, it didn’t happen. Angela was having an emotional response, but it was over a factual issue — the composition of her portfolio — and nothing short of changing that composition was going to satisfy her. It was time to drop back and punt. I offered to send her proposals for restructuring her holdings and she left, a bit mollified but clearly not entirely happy.

[More: Strategies for dealing with irrational clients]

Michael Broad is a financial planner and investment advisor in Newton, Massachusetts. Got a good client story or problem you’d like to see in a future column? Email Michael Broad.