Translating Emotions

Anyone who thinks choosing a wealth manager comes down solely to returns and risk is mistaken. The decision to stay with a manager or move your money elsewhere is driven by much more than performance.

Over my many years in private banking, I have seen every variation imaginable. Mandates won and lost, sometimes deservedly, sometimes not. Naturally, we are delighted when we win a new client. When we lose one, however, we tend to shake our heads and wonder about the client's seemingly irrational decision.

Often, someone has wanted to move toward something, or away from something, for quite some time. For emotional reasons. Sympathy and dislike play a role, as do temptation and promises. The heart made up its mind long ago, while the brain waits for an opportunity to provide a rational explanation. Our business produces anything but consistent results, so a convenient reason is usually easy to find.

Beneath the Surface

One underestimated source of dissatisfaction is the feeling of missing out. When new technologies are changing the world, wealth managers who show little interest in them have a hard time. Or those who are simply perceived as showing too little interest. The pressure increases further when the shares of companies associated with those technologies keep rising for months.

At the other end of the spectrum is the fear of looking foolish. That can actually be even more powerful than the fear of losing money. Anyone who finally worked up the courage in the summer of 2000 to invest large sums in internet stocks, and then enthusiastically lectured family and friends about them, had some difficult years ahead. At every gathering, the inevitable question followed: “So, how are those stocks of yours doing?” That often hurt more than the financial loss itself.

Simply reminding clients that stock prices can fall by 50% is therefore not enough. Nor is it enough to point out that this happened in the early 2000s and again during the 2008 financial crisis. Anyone managing money for others has to dig deeper and understand their non-financial goals and fears. They are often more varied and more personal than we realize.

So the next time a client says she wants to preserve the real value of her wealth, we as advisers need to ask the more difficult question: “Why?” Once we understand the why, we can find the right how.