Clients will come up with a plethora of reasons for how they make investment decisions. As an advisor, it’s your responsibility to understand those barriers, so you know how to work around them and get your clients the results you both want.
Many people are attracted to the idea of investing because they think with a little luck and little to no planning, they can turn nothing into a big fat something.
We know the truth though — it takes significant time, expertise and planning to make lucrative investment decisions and yield profitable results.
The sheer mindset that “anyone can do it,” can actually shy clients away from working with professionals and lead to financial mishaps.
If you encounter a skeptic, it’s important to convey why your experience and expertise is the ticket for successful investing.
In the face of adversity, an emotional investor will act in one of two ways: either fight (double-down, try to recover losses) or set flight (sell without thinking.) While working with a new client, try to identify which of the two they might be, either by asking them or assessing based on their personality.
Should a situation arise, where the client becomes overwhelmed and looks to be considering a fight or flight decision, encourage them to slow down, evaluate the situation, then make a careful and informed decision.
Humans are nearly twice more sensitive to pain than pleasure. For instance, if as a child you burn your tongue on hot food, you’ll remember the experience and be exceptionally careful to wait for your food to cool every time after.
The same principle can be applied to investing — when an investor experiences a loss with a stock, they may associate pain with stocks, in general as opposed to just that specific stock.
This viewpoint can be like tunnel vision, excluding clients from potentially beneficial investment possibilities down the road.
We are natural pattern seekers — it helps us make sense of an otherwise senseless world. However, this rationale is less helpful in the world of investment, when clients begin to ignore logic in favor of their perceived “patterns.”
For example, many notable market crashes have occurred in October, which can keep investors from being in the market during October, to avoid the “inevitable” crash. Where possible, encourage your clients to rely on logic and facts, over superstition and premonition.
Many inexperienced investors are attracted to bull markets, under the lure of quick, easy money. More often than not, a novice investor will invest in the late stages of a bull market and rejoice in early profits, giving them a false confidence in the success of their investment, when in fact the gains are likely more a result of just being in the market.
As a novice, these early successes are enough to encourage them to keep tossing more money into it, regardless if the market turns negative. Yet, due to the early gains, the investor will want to hang on to their investments in hopes of redemption.
Advisors can do good by their client by catching them before it’s too late and they suffer serious financial ruin.
Everyone (myself included) is illogically bias towards their hometown — it’s something ingrained in our DNA. As such, we always think whatever comes from our home town, state or country is the best, which can also translate into investing.
Less experienced investors are quick to believe the best opportunities are in areas we know or have special interest/expertise; a great investor will understand this is not always true.
As an advisor, help your clients to see beyond their biases and steer them towards options that make the most financial sense for their goals.
Which of these (if not all) clients have you encountered? If you want to learn more about the psychology of sales and investment, download this FREE chapter of my book: “Psychology & Personal Discipline: Learn the nuances of selling to men, women and couples; how having a big enough “why” can catapult your business to the next level.”