May 12, 2020
When I was a kid, I came home from school one day on the bus to see my family property on fire at a distance. I remember thinking that our house must have burned down and being fearful for my family and our home. As I got closer, I could see that the fire was contained to my father’s fields and some of my fear subsided because I assumed that our possessions and my family would probably be OK. Prior to that moment, you could have given me all the detailed information in the world about how fire works or even the percentage of fires that actually take human life, but that would not have made me feel less anxious. I needed to gain perspective about the impact of this fire on my family and daily life.
Today our clients are facing fear of the unknown on multiple fronts, bringing back some memories from the 2001–2003 financial crisis. This March, college students and families were on spring break across the United States as everyday activities came to a grinding halt, and we found ourselves combating a health crisis that has spread to an economic one. What has been shocking is how quickly we moved from booming economy and healthy household to a bear market and sheltering in place. Clients are facing new financial problems and information is developing at incredible speeds. Confidence is not built overnight and events like this require immense trust in advisors and institutions to weather the crisis. Just as they develop financial plans for clients, advisors need a plan for providing clarity through communication that imbues confidence for our clients.
Even if you have done an incredible job of educating your clients to understand the cyclical nature of the economy and perils of “System 1” thinking. System 1 thinking comes from Daniel Kahneman’s book Thinking, Fast, and Slow. This category of thinking is fast, emotional, and almost unconscious. It is not the deliberate, systems-oriented approach an advisor would take in planning for a client. Understanding that this may be how individuals process information is especially relevant during times of crisis management. Your clients are not likely to maintain planning perspective during a time with this much economic and social noise. Clients will turn to your expertise because they trust you to provide them with anchoring information and clarifying confirmation. At the client level, this could come as a personal phone call or electronic meeting to share two main points: (1) We have a plan in place (see confidence below) (2) Are there any parts of the plan we built together that I can provide clarity on to help you maintain focus on the other areas of importance in your life right now?
The modern era has brought about a plethora of communication mediums, and when clients are more anchored to their homes, they are even more inclined to be inundated with fear-based messaging without the outlet of distraction that the workplace can provide. This can lead to an even greater sense of hopelessness during crisis. Advisors now more than ever need to be proactive in communication content, style, and medium. Spend some time thinking about your client base and scalable processes that would allow the leverage of technology to come alongside more personalized messaging to build trust, confidence, and clarity.
Confidence leading to trust
One of the most basic lessons I focus on teaching in my financial planning classes is that a service-based economy depends on consumer spending and ultimately consumer confidence. Confidence is belief that the future reality will be close to today’s expectations. We talk about trust as cumulative, but it is predominately a micro trait of an individual. In financial services, trust is when you give someone else the responsibility to manage confidence in specific domains. During times of crisis, financial advisors need to remember that these two, trust and confidence, are not always the same although they can be correlated. Build confidence by reminding your client that his or her plan was created during a time of stability to account for the unexpected and stay anchored to the long-term vision. Build trust by reminding your client of the consistent research and management actions you have performed together to uncover and advance financial goals, with specific focus to planning domains outside of investments only. The wording of your communication is very important. Research has shown that some of the largest elements of trust specific to financial planning are: vulnerability, honesty, best interests, accountability, and competence.2 Think of some of the characteristics when communicating to build confidence, especially in the electronic medium where traditional social cues are lost.
I later found out that my father worked with the fire department that day to purposefully burn his fields. I asked my father why anyone would do that and he told me that fire is one of the best ways to cleanse a field of invasive grasses and weeds. He told me that the native grasses he was growing were designed with deep root systems that could come back after a fire but that other grasses would not survive a fast, controlled burn. Within a day I had gone from a feeling of losing people and possessions to understanding how new growth comes from destruction. Oftentimes confidence isn’t restored so quickly during crisis, but I learned lessons that day that stuck with me as I moved to adulthood. I learn that clarity tends to abate fear and confidence is most influenced by those you trust.
1Kahneman, Daniel. Thinking, Fast, and Slow. Farrar, Straus and Giroux; 1st edition. April 2, 2013.
22Cull, M., & Sloan, T. R. (2016). Characteristics of trust in personal financial planning. Financial Planning Research Journal, 2(1), 12-35.