Financial decisions are rarely made in an emotional vacuum, yet many advisers continue to approach client conversations as though they were.
Simply telling anxious clients to "stick to the plan" during market turbulence often falls flat, even if it is the ideal approach for long-term results.
Advisers who acknowledge and skillfully address the emotional ups and downs of investing can improve client retention by fostering relationships that withstand market cycles and generate meaningful referrals.
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The psychology of investing
Investors can cycle through a range of emotional responses when markets fluctuate, from euphoria during bull markets to fear and panic during declines.
These emotions can trigger physiological stress responses that literally change how the brain processes information, compromising the decision-making abilities of even the most rational clients.
These emotional responses can also have financial ramifications. According to Zacks Investment Management, behavioral finance research shows that emotionally driven investors typically underperform the market — not because of poor strategy, but because emotions drive poorly timed entry and exit decisions.
Recognizing emotional triggers
These emotional responses are often elicited by market downturns or sensationalist media coverage. Personal circumstances like approaching retirement, recent inheritance or the loss of a loved one can also serve as triggers.
Adviser warning signs that may signal emotional decision-making is imminent include:
- Sudden increase in portfolio checking. When clients who typically review statements quarterly begin logging in daily or weekly, this often signals rising anxiety.
- Comparing performance to inappropriate benchmarks. If a conservative client suddenly starts comparing their diversified portfolio to tech stock returns, they may be experiencing fear of missing out (FOMO).
- Changes in communication patterns. This includes how frequently they reach out and the tone they use when talking with their adviser.
- Forwarding market commentary or financial news articles. The forwards may include questions like, "Should I be worried about this?" or "What are we doing to address this?"
- Subtle shifts in language. If the client starts using "you" instead of "we" when discussing their portfolio, it could indicate they are psychologically distancing themselves from shared responsibility.
- References to anxiety or pressure. The pressure could come from external sources, such as family members, or from internal worries about upcoming life events.
The language of emotional intelligence
Advisers can get ahead of these warning signs by using emotionally intelligent communication tactics.
Begin difficult conversations with phrases that acknowledge feelings without judgment and avoid dismissive language like "It's no big deal" or "There's no need to worry."
It's also important to avoid overly technical explanations that ignore emotions and false reassurances that undermine credibility.
Instead, focus on using empathetic statements that validate before redirecting:
- "I understand this feels concerning, and your feelings are valid. Let's look at how we anticipated those scenarios in your plan."
- "You're not alone — this is a common uncertainty. Let's look at how we've prepared for this and talk through any questions you might have."
- "That news headline would make anyone nervous! Let me share some context that may be overlooked and might help you feel better about the situation."
Redirection offers the opportunity for advisers to connect current feelings to future objectives.
Visual aids — particularly timeline graphics showing historical volatility alongside long-term growth trends — prove particularly effective in refocusing emotional clients.
Analogies and storytelling are also effective tools for reframing the conversation.
Advisers can prepare response frameworks for difficult emotional conversations. One framework might look like this:
- Acknowledge the emotion: "I hear your concern …"
- Make them feel like they're not alone: "Many investors feel similarly when …"
- Reframe perspective: "Let's look at this from your retirement timeline …"
- Present options: "Here are three ways we might address this …"
- Confirm understanding: "How does that approach feel to you?"
Building emotional resilience in clients
Proactive advisers can set the foundation for emotional resilience long before market challenges emerge. During calm markets, consider conducting "emotional fire drills," discussing how various scenarios might feel and pre-committing to appropriate responses.
Educational content addressing the psychological aspects of investing also helps normalize clients' emotional responses.
Advisers can develop regular communications specifically addressing the emotional dimension of wealth management alongside technical market updates.
One adviser we work with had a client who called in panic during a significant market correction. The client wanted to sell their entire portfolio.
Rather than immediately arguing against this decision, the adviser first validated the client's fear by saying, "That must feel incredibly stressful. I appreciate you calling before making any changes."
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The adviser then asked questions about the specific fears driving the request, learning the client was particularly concerned about losing income to cover an upcoming house project.
By the end of the conversation, the adviser had crafted a targeted solution addressing the specific need and redirected them away from a portfolio liquidation.
Referrals followed
The client later referred two friends, citing the adviser's emotional understanding during a difficult time as the primary reason for the referral.
Financial advisers who develop emotional intelligence skills create significant competitive advantages in client retention and acquisition.
By understanding, validating and skillfully redirecting emotional responses, advisers can transform potentially damaging moments into relationship-strengthening opportunities.
The most successful advisers recognize that addressing the emotional side of investing isn't just about making clients feel better — it's about helping them make better financial decisions that advance their long-term goals, even when emotions run high.
AE Wealth Management, LLC (AEWM) is an SEC Registered Investment Adviser (RIA) located in Topeka, Kansas. Registration does not denote any level of skill or qualification. Information regarding the RIA offering the investment advisory services can be found on brokercheck.finra.org. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. The personal opinions expressed by Ben Sullivan are his alone and may not be those of AE Wealth Management or the firm providing this report to you. This information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual's situation. None of the information contained herein shall constitute an offer to sell or solicit any offer to buy a security or insurance product. CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S. 4613651 – 6/25
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