Why People Are Afraid of You and Why You Are Afraid of Them

Author

Cannon Financial Institute
Published

August 4, 2021
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If you are a Financial Advisor, clients and prospects are often afraid of you because they’re embarrassed at how little they know about personal finance. They don’t understand your jargon, feel intimidated by your knowledge and don’t know if they should trust you. Sadly, the financial services industry is the least trusted of all industries by the general population in the U.S.[1]

Many people don’t seek professional financial advice because they are too fearful.[2] To those of us in the business, this seems a bit much. We’re friendly people. The vast majority of us are trustworthy. We want to help people with their money. It makes us feel good to guide people through the complexities of finance. It’s what we do.

I’ve been a Financial Advisor, a manager of Financial Advisors, as well as serving as a training and development consultant to them at several hundred financial firms around the country. What I have observed repeatedly is we, as Financial Advisors, use too much industry jargon when dealing with clients and prospects. When people ask us questions, they often don’t understand the answers we give, and they don’t want to ask us to explain our explanation.

One of the best sources of information about investors is Psychology Today. [3] They don’t write about the specifics of finance, but they tell us how people feel about money. Money and emotions are so intertwined, it can be challenging to separate them. When advising clients, we need to mention this upfront. “If an investor cannot control their emotions, they cannot control their money.” [4]

When I googled “fear of financial planning,” I discovered 278,000 entries. Articles came from everywhere, most having ominous headlines. “How to Conquer Fear of Financial Planning,” from ThinkAdvisor. [5] “How to Overcome your Fear of Financial Planning,” from Kiplinger. [6] “Making Financial Planning Less Scary for Investors” from WealthManagement.” [7] Want to be the scariest monster at your next Halloween Party? Go in your costume as a Financial Advisor.

But why do our clients scare us? Because we fear giving them our best advice if it contradicts their strongly held beliefs about investing.[8] If we do this, they could become uncomfortable employing us as their Financial Advisor and might move their accounts to someone more congenial.

“Do Financial Advisors undo or reinforce the behavioral biases and misconceptions of their clients?” Unfortunately, we as Financial Advisors reinforce biases and misconceptions about investing, concludes the National Bureau of Economic Research in their white paper, “The Market for Financial Advice: An Audit Study.”[9] It seems that many of us recommend investments that chase performance.

The primary author of the report is Professor Sendhil Mullainathan, a distinguished academic in the field of behavioral science as it applies to personal finance and the winner of a MacArthur Genius Grant. [10] While I can’t prove my thoughts on these issues in the type of study carried out by Professor Mullainathan, I believe that some clients want us to chase performance. If we think this is a bad strategy and won’t go along with this, they will take their money elsewhere.

Since we know that fear exists on both sides of the table, what should we do about it? Understanding what our clients fear and what we as Financial Advisors fear is a good first step. Perhaps mentioning this to clients is another step, so we are both aware of these powerful emotions. Don’t be afraid to admit your own biases to yourself. We all have them. Be aware of yours.

Resources:

[1] https://www.psychologytoday.com/us/blog/financial-life-focus/201902/what-does-it-take-gain-trust-in-the-financial-industry

[2] https://www.psychologytoday.com/us/blog/financial-life-focus/201701/i-would-hire-financial-advisor-part-1

[3] https://www.psychologytoday.com/us

[4] https://www.psychologytoday.com/us/blog/the-human-side-finance

[5] https://www.thinkadvisor.com/2019/04/18/how-to-win-over-the-reluctant-financial-planning-client/?slreturn=20190727141200

[6] https://www.kiplinger.com/article/investing/T023-C032-S014-how-to-overcome-your-fear-of-financial-planning.html

[7] https://tinyurl.com/finplalessscary

[8] https://www.forbes.com/sites/rickferri/2012/03/30/financial-advisors-encourage-bad-behavior/#2f5636ca22d8

[9] https://www.nber.org/papers/w17929

[10] https://www.chicagobooth.edu/faculty/directory/m/sendhil-mullainathan

Contributing Writer: Subject Matter Expert Charles McCain