How emotionally intelligent is your financial adviser?
Written on the 9th of February 2012 by Keith Peel
Financial advisers by definition are numerate, logical and rational. Some might say, they have little need for a high degree of emotional intelligence. They are paid to analyse their client’s financial situation and construct a technical strategy that optimises the client’s ultimate outcomes in life, taking into account risk and return probabilities.
But how do they react in times of stress and fear prompted by recent years of sharemarket volatility?
From sure-fire strategies to emotional volatility
In working with their clients, financial advisers take careful steps to present well-engineered financial plans, full of financial calculations and projections designed to achieve an end result, such as a targeted retirement income at some time in the future.
The happy new client is dispensed with a weighty 80 page plus financial strategy document, receiving it like a newborn baby, full of promise and expectations.
But what happens when markets go south and volatility causes those perfect assumptions to crash and burn, often wildly, and end outcomes become hopelessly unrealistic? The beautiful plan is now impossible to achieve.
Financial planning is a hypothetical experience for many clients – it’s all about the future and what wealth can be created based on your financial assets and income, your goals and your capacity for risk. This future state creates a halo effect around the real risks involved for most inexperienced clients, like everyday mums and dads. Investing becomes a roller coaster ride for many average investors.
Global volatility has wiped billions of dollars of capital off sharemarkets since 2007, when the GFC and the subsequent euro crisis sent markets into a spiral. The ASX 200, a leading measure of the Australian market, has declined by 12% in the past year and 25% over the last 3 years. Millions of dollars have been wiped off the wealth of average Australians’ superannuation accounts and direct share portfolios.
Despite being made aware of the risks of investing in sharemarkets many clients react violently and emotionally and irrationally to losing money - understandably you might agree. Volatility transforms those happy clients to fearful and concerned investors. Many become difficult and challenging. Some even take legal action for losses.
Financial advisers for the most part are poorly equipped to manage the emotional reactions of clients in these situations. They revert to the theory that investing is a long-term game and over time a well-balanced share portfolio will deliver a return to justify the risk and achieve the investors’ ultimate goals. While this may or may not be true (and of course it’s impossible to say definitely into the future) clients are more concerned about what they’ve lost today. The long-term-investment-story simply doesn’t cut through.
Loss of control
Financial advisers tend to respond to market volatility and angry or fearful clients in two ways. Advisers slavishly articulate the long-term investment story to such an extent they may actually misread the emotions of a client in front of them. Clients may see these advisers are uncaring and insensitive. The opposite effect occurs when a financial adviser becomes defensive and responds to argumentative clients with anger and conflict.
Neither response to client concerns is healthy to a long-term relationship of intimate trust and belief in the long haul.
The most trusted advisors
What great financial advisers know in these situations is that they have to do more than manage the client’s money; they need to manage their emotions. And most vitally, they need to be aware of their own emotions in times of stress and anxiety to ensure they don’t inflate the situation and cause the client to lose faith and trust in the ability to manage their situation prudently.
One of the most powerful attributes of a trusted financial adviser is emotional control, their ability to regulate their own emotions and the emotions of their clients in times of stress.
Emotional intelligence is becoming more considered as a core competence of financial planners at financial institutions. Traditional training programs that teach financial analysis, numeracy and strategy skills are being layered with emotional skills to develop a well rounded professional.
Andrew Collis, a financial planner based in Melbourne’s CBD who runs Prospero Financial Group says EI is starting to be recognised as a useful and tangible skill.
“Financial planners viewed so called soft skills like rapport building and empathy as passive skills, something inherent in a planner’s character or style, like a good bedside manner in a doctor. We have never been trained in actively managing the emotional relationship.”
Collis observes that investment markets and global uncertainty now mean “we simply can’t ignore the balance between rational, technical skills and how clients actually feel and behave.”
Collis is renowned by his clients for his strong EI, an ability to stay calm in volatile times. This self-control has a powerful effect on clients.
Emotional skills can be taught and learned. Financial advisers can develop skills in self-awareness, self-control, reframing negative situations and emotional management of clients.
The next time you have a review of your financial situation with your financial adviser pay attention to how they deal with bad news and specifically concerns you may rise about your financial security. And ask them to identify how you might feel about the bad news. The advisers who recognise your fearfulness and concerns but manage your emotions productively are displaying great emotional intelligence.
Keith Peel works with Financial Planners at Colonial First State as a business and marketing coach. A consultant in client and brand engagement, Keith is a certified Genos Emotional Intelligence practitioner.
The Emotionally Intelligent Adviser
New reforms to raise standards within the Australian financial planning industry and give consumers peace of mind when obtaining financial advice become compulsory on 1 July 2013.
The Emotionally Intelligent Adviser is an innovative 2-day programme designed specifically to help financial advisers master advice conversations in the new regulatory environment, engage clients and build long-term, valued relationships. This programme is available as a public programme or in-house training for financial planners and dealer groups. FPA members are awarded 28 CPD points.