You may have noticed an increased sense of uncertainty in customer conversations lately. Despite a strong bull market, recent years of higher prices, mortgage rates and a new federal administration combine to create doubt and indecision. of American Bankers Association reports that 80% of all consumers are experiencing high levels of financial anxiety.
Financial anxiety is real and is one of the main drivers of relationship issues and mental health conditions. Some stressors are situational, while others are rooted in the client's deep beliefs and early impressions about money. Keep in mind that while your existing customers may have significant resources, that doesn't mean they have lower anxiety levels.
Now, add to the mix a new generation of young consumers who may never have invested before or worked with a financial advisor before. Intergenerational wealth transfers will be inevitable, with nearly $80 trillion of wealth accumulated by the younger 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 positive and some negative. New interactions, and especially those involving unfamiliar topics like money, can bring a great deal of anxiety, and this, in turn, creates friction for your new client-advisor relationship. Those new customers who find themselves in unfamiliar territory or have uncontrolled anxiety can find a way to move their money elsewhere. How can advisers better manage this? Seek to bring clarity and ease money anxiety.
As financial advisors, we are trained to understand a client's full financial picture before providing advice. Historically, for many of us, this has meant evaluating quantitative financial information and only briefly touching on other qualitative metrics, such as risk tolerance assessments. Behavioral finance has introduced more tools, including questionnaires about money beliefs and behaviors. These tools are all effective, but there are other ways counselors can begin 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-building. Your new generation clients will enter the advisor-client relationship with a host of other things on their minds. For many people, this inheritance or transfer represents a substantial windfall and perhaps their only investable asset. But it also comes with new challenges: what to 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 generation customers address all of their initial and ongoing anxiety is essential to winning and keeping their long-term business. If you haven't already, include a variety of assessment tools—including investor styles, decision-making models, and risk tolerance tools—to help you evaluate styles. 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 customer experience.
Financial therapy is a new field that combines financial advice with behavioral science to improve financial well-being. Not everyone should do this, but for those high-anxiety clients, adapting your style to a more therapeutic approach can help reduce stress.
These are guided conversations that go deeper through the use of probing questions to get to the root of the anxiety. If you change the way you phrase questions, you'll get more authentic answers.
So instead of saying, “What's your level of risk that you're comfortable with?” How about “Describe for me your biggest worry or fear about your money or investments?” Or ask, “when did these fears first appear? Are there things that you have found helpful to help reduce these fears?” Using open-ended questions and listening more can also help.
The new generation of clients will bring anxiety, uncertainty and change to your practice. Be prepared for this by adjusting your style and your practice accordingly.
James Langabeer, PhD, ChFC is a behavioral financial advisor, author of The Quest for Wealth: Six Steps to Making Wise Money Choicesand managing director at Yellowstone Wealth Advisors, LLC.