Independent financial advisers who are committed to behavioural coaching are well positioned to help clients cultivate a sense of emotional and response awareness in a bid to move towards better financial outcomes. Tebogo Marite shares ideas on how you can help your clients train their awareness muscle.
Helping your clients develop better control over their thoughts and emotions can lead them to better long-term financial outcomes. This is beneficial for younger clients with longer time horizons, as they have the opportunity to see their resilience translate into meaningful financial growth.
Why should awareness be part of the behavioural advice journey?
Awareness can mitigate the losses that can occur when clients are not in control of their responses to thoughts and emotions. However, it can be difficult for some clients to sustain long-term behavioural change, even when they know it is in their best interest. Part of this is explained by how we evolved to survive: Fundamental instincts like fear or fight-or-flight responses are designed to protect us but if left unchecked, these instincts can also lead us to avoid constructive challenges like taking on adequate risk or being resilient through tough cycles.
Often, clients simply don’t realise that they can take a step back and decide how they respond. Awareness improves the ability to pause and apply reason and rationale before acting. As an adviser, you can help your clients develop this skill.
How can you help your clients cultivate awareness?
Ask the right questions
Market news or short-term fluctuations often prompt investors to make hasty buy or sell decisions, or de-risk when maybe they shouldn’t. While you can’t control your client's thoughts or feelings, you can help them manage their responses by asking them the right questions.
Dr Roddy Carter, who is originally from South Africa and has worked with business leaders and athletes as a physician, neuroscientist and executive coach in various geographies over the last 40 years, recommends three key questions to help clients process their emotions:
- What are you feeling?
- What are you fearing?
- What are you thinking?
Through categorising what is going through their mind, a client may begin to observe and critically analyse their thoughts and feelings. As a behavioural adviser who plays the role of being a thinking partner, you can use this simple technique to help your clients practise pausing before acting.
Help your clients to tackle limiting beliefs
Some clients may believe it is too late to change money habits, or that investing is too complex for them to get right. These are examples of internal limiting beliefs – ingrained convictions we have about ourselves.
Limiting beliefs can also stem from external assumptions – beliefs that act as a filter for how we interpret events. For example, clients may believe that key news events, like elections, have a major impact on their portfolios when, in reality, elections may have a short-term impact, but there are other variables to consider over the long term. Similarly, clients may be attracted to popular shares being given airtime in the news; the notion that well-known stocks are always good investments can cause clients to overpay due to the stocks’ popularity.
Limiting beliefs often go unnoticed but bringing them to light can foster awareness. As an adviser, you may recognise these beliefs in your clients more easily than they can. By guiding them to identify and challenge these convictions, you can empower your clients to overcome them over time.
Embrace emotions as valuable signals of your client's state of mind
Knowing how detrimental emotions can be to long-term investing, it is tempting to wish them away. But emotions can also serve as important signals. Dr Carter explains that understanding a client's emotional state can reveal which thinking centre is driving them. Are they operating from the fear-driven centre of the brain, which prioritises survival, or the part of the brain which controls thought and reason?
Rather than allowing emotions to steer the conversation, use them as indicators of your client’s mindset at that moment. This approach allows you to meet clients where they are and can gradually help you and your client see emotions as enablers as opposed to detractors from their financial goals.
Awareness can help clients stay the course
The behaviour gap, which is the difference between a unit trust’s return and the return achieved by the average investor in the unit trust, tends to arise due to behavioural missteps – particularly investing and disinvesting at the wrong time, for the wrong reasons. An example of this is selling investments which are temporarily underperforming, locking in losses.
For South Africans, the past 12 months may have felt like a rollercoaster: After a decade of underperforming domestic stocks, the latter part of 2024 saw an upward turn in the performance of the Johannesburg Stock Exchange as the country’s economic outlook improved under the newly formed government of national unity. However, the initial euphoria gave way to concerns about the complexities of coalition politics, leaving investors questioning the sustainability of this optimism. Meanwhile, offshore, a handful of American tech stocks continue to dominate and investors closely watch how Donald Trump’s presidency may influence global market dynamics.
For your younger clients who may not have lived through previous market storms or times of uncertainty, these fluctuations in sentiment can stir emotions that make holding steady difficult.
Assisting young clients to cultivate a sense of awareness can help them to navigate the inevitable ebbs and flows of the market with thought and reason, and with emotions far less in control.