How to Cope With Angry Clients

As a financial advisor, your role is challenging. At any given moment, you must balance the rational task of navigating the capital markets with the non-rational challenges of managing client emotions. In important ways, navigating investor behavior is more complicated than navigating the capital markets, since human emotions swing much more wildly and less predictably.

Avoid Causing Anger: Don’t Try to Manage It

Anger is a protective emotion of varying degrees that’s deployed to remedy broken or unfair dynamics in relationships. Once a person gets angry about a loss or injustice, it’s very difficult (and sometimes impossible) for another person to step in and dispel the negative feelings by arguing or negotiating. Anger comes from deep, primitive structures in the brain stem where there’s no language or rational process. As a practice-management strategy, it’s better for advisors to take actions designed to avoid causing anger rather than try to untangle it once a client is in its grips.

The idea of anger as a protective emotion deserves greater consideration. Since anger is designed to right a wrong, it’s always focused at someone or something¾it’s the primitive mind’s signal to the problem-solving part of the brain that something is broken and needs to be fixed.

Remember the last time you were angry? What did you want? You wanted to fix the problem, to heal the injustice. Those feelings of injustice can be powerful, and can be caused by something as simple as someone cutting in front of you on the highway.

What Causes Investors to Get Angry?

As Daniel Kahneman discovered, when it comes to investing, pain is twice as motivating as pleasure is: “The response to losses is stronger than the response to corresponding gains.”[1] We all understand this implicitly: a gain needs to be more than twice as much as a loss to “balance” the client’s experience of pain. An implication of this is that it’s far easier to disappoint a client than it is to satisfy him.

No amount of rational conversation will erase the pain of loss. You can’t inoculate your business from investor disappointment simply by explaining risks or assessing tolerance; humans simply can’t tolerate losing money. A small loss causes us to wince, even when we knew to expect volatility and our advisor helped us understand the risk. A large loss is extremely painful and almost always translates into feelings of injustice, which turn quickly to anger. Clients complain about the loss and blame their advisor. Even when they don’t say they’re angry, clients perceive injustice and want a remedy.

The rational mind and the emotional mind don’t communicate with each other very well. Experienced advisors have observed highly rational clients collapsing into irrational behaviors even when they were fully aware that an investment was likely to be volatile.

Fortunately, even though clients will feel hurt and angry about losses, most can be taught not to attach all of those feelings to their advisor. Over time, clients can learn to engage their rational mind, to question their tendency to blame the advisor about losses and to rein in their desire to seek a remedy.

Usually, as positive results stack up over time, most clients come to accept that occasional losses happen. They learn to feel the pain of the loss, to look at the good things that have happened and to feel (mostly) satisfied with the big picture of what their advisor does for them.

What Causes Clients to Become Outraged?

Anger is a powerful emotion and can lead to rage. Anger stirs a desire to repair something that is broken, rage stirs a desire to be compensated and to punish. Investors get angry when the markets are volatile; clients become outraged when they feel that their advisor was negligent or when they think a loss should have been avoided. For most people, incurring a loss that could have been prevented or reduced is outrageous.

Imagine that you’re driving and a tire suddenly blows out. Your car swerves and hits another car, and you’re injured. You feel pain and anger, and have to digest those feelings to get over the experience. A month later, you discover that the manufacturer of your tires is being investigated¾20% of the tires have defects, and executives have been covering up these faults. Your feelings now move from anger to outrage, and you want to punish someone for negligence.

Cause for Concern Today

Advisors should be concerned about the likelihood of client rage in the near future if they don’t review and adequately prepare their clients’ bond portfolios. There are good reasons to believe that investors are emotionally quite unprepared for a rising interest-rate environment, in spite of the other market challenges they’ve coped with since 2008.

For many investors, 30 years of falling interest rates and incredibly robust, positive returns from fixed-income investments have instilled a powerful set of assumptions about the reliability of fixed income as a return generator; they’ve set investors up for great disappointment. Most investors—and the majority of advisors—have never experienced a rising interest-rate environment. Rationally, investors know what happens when rates go up, but emotionally, they’re used to the way things have always worked. This natural tendency of human beings to use emotional information to make decisions has created the conditions for a serious client-management challenge.

Avoid Outrage—Strong Emotions Are Not Manageable

Thirty years of the same positive investment experience creates a kind of emotional inertia, and the uncertainties in today’s markets make it very difficult to discern the right thing to do. The rational mind knows that the time to prepare for the inevitable is before rates start to rise, just as our thinking self knows to buy a generator long before the storm is forecast. Unfortunately, our emotional self can be easily locked up by inertia and become resistant to change. Many investors today are reluctant to take action and prefer the comfort of “familiarity.”

Some advisors have fallen victim to the same thinking, believing there will be plenty of time to review clients’ portfolios and recommend any necessary adjustments after the Fed sends signals or once rates start to rise. We believe that this is a shortsighted and dangerous approach, and as we’ve seen recently, there’s often not much time to react. Now is the time to take appropriate and thoughtful actions, to educate clients on the role fixed income plays in their portfolio. Prudent advisors should help clients understand how their bond strategy should be expected to behave, and to suggest appropriate fixed-income strategies that can further diversify a portfolio and provide insulation against the impact of rising rates while still aligning with their objectives. By doing this, advisors can prevent their clients from becoming enraged when they’re unprepared for their fixed-income experience in rising rates.

Act Now Before Events Force You to React

When interest rates rise, advisors won’t be able to manage client’s feelings. Once investors become outraged, it’s too late. The time to act is always before irrational feelings become activated. As we explored earlier, the emotional part of the brain doesn’t use language and isn’t constrained by rational process: an outraged client is potentially unmanageable. With this in mind, we recommend the following.

First, accept the potential dangers of emotional inertia. Human beings rarely change a familiar pattern of behavior until there is a compelling reason to do so. It’s our nature to wait until we get a wake-up call.

In the same way, many fixed-income investors, who are comfortable with the familiar, may not be motivated to review or revise their strategy while they’re still enjoying the benefits of a 30-year falling interest-rate environment. Unfortunately, if advisors wait and allow the markets to provide the wake-up call, clients may be unprepared for how their core fixed-income strategies may respond to a rising rate environment—and may be surprised by experiencing negative returns. It may also be too late for clients to further diversify their portfolios, for the same reasons it’s hard to find a generator at the hardware store the day before or after a hurricane hits your house!

Second, anticipate the normal reaction that clients will have to incurring a predictable loss, and therefore one that can be avoided or limited: potential outrage. Advisors can avoid this by initiating a conversation with clients who will be impacted by rising rates; they need to understand the implications for their future. The prudent advisor will make his opinion known so that each client will understand the problem and see that his advisor is taking the appropriate action.

Third, educate clients about fixed-income strategies available in the marketplace that can help dampen the impact of rising US interest rates—whether it’s credit, a global approach, reduced duration or some other strategy. Whether or not the client chooses to act, when an advisor explains the alternatives that are available, the potential for future conflict is greatly reduced. Importantly, these conversations serve as an inoculation to help prevent outrage.

Finally, record notes about each of these conversations digitally to ensure that each entry is formally time-stamped. Many advisors still make handwritten notes in a journal or file. Such notes can be questioned as to their authenticity. Modern technology ensures that a notation about a conversation and set of recommendations is permanently stored and available for review if there is any question about the advisor’s attention to this issue.

Ken Haman is the Managing Director at the AllianceBernstein Advisor Institute, visit http://ria.alliancebernstein.com.

As a financial advisor, your role is challenging. At any given moment, you must balance the rational task of navigating the capital markets with the non-rational challenges of managing client emotions. In important ways, navigating investor behavior is more complicated than navigating the capital markets, since human emotions swing much more wildly and less predictably.

Avoid Causing Anger¾Don’t Try to Manage It

Anger is a protective emotion of varying degrees that’s deployed to remedy broken or unfair dynamics in relationships. Once a person gets angry about a loss or injustice, it’s very difficult (and sometimes impossible) for another person to step in and dispel the negative feelings by arguing or negotiating. Anger comes from deep, primitive structures in the brain stem where there’s no language or rational process. As a practice-management strategy, it’s better for advisors to take actions designed to avoid causing anger rather than try to untangle it once a client is in its grips.

The idea of anger as a protective emotion deserves greater consideration. Since anger is designed to right a wrong, it’s always focused at someone or something¾it’s the primitive mind’s signal to the problem-solving part of the brain that something is broken and needs to be fixed.

Remember the last time you were angry? What did you want? You wanted to fix the problem, to heal the injustice. Those feelings of injustice can be powerful, and can be caused by something as simple as someone cutting in front of you on the highway.

What Causes Investors to Get Angry?

As Daniel Kahneman discovered, when it comes to investing, pain is twice as motivating as pleasure is: “The response to losses is stronger than the response to corresponding gains.”[1] We all understand this implicitly: a gain needs to be more than twice as much as a loss to “balance” the client’s experience of pain. An implication of this is that it’s far easier to disappoint a client than it is to satisfy him.

No amount of rational conversation will erase the pain of loss. You can’t inoculate your business from investor disappointment simply by explaining risks or assessing tolerance; humans simply can’t tolerate losing money. A small loss causes us to wince, even when we knew to expect volatility and our advisor helped us understand the risk. A large loss is extremely painful and almost always translates into feelings of injustice, which turn quickly to anger. Clients complain about the loss and blame their advisor. Even when they don’t say they’re angry, clients perceive injustice and want a remedy.

The rational mind and the emotional mind don’t communicate with each other very well. Experienced advisors have observed highly rational clients collapsing into irrational behaviors even when they were fully aware that an investment was likely to be volatile.

Fortunately, even though clients will feel hurt and angry about losses, most can be taught not to attach all of those feelings to their advisor. Over time, clients can learn to engage their rational mind, to question their tendency to blame the advisor about losses and to rein in their desire to seek a remedy.

Usually, as positive results stack up over time, most clients come to accept that occasional losses happen. They learn to feel the pain of the loss, to look at the good things that have happened and to feel (mostly) satisfied with the big picture of what their advisor does for them.

What Causes Clients to Become Outraged?

Anger is a powerful emotion and can lead to rage. Anger stirs a desire to repair something that is broken, rage stirs a desire to be compensated and to punish. Investors get angry when the markets are volatile; clients become outraged when they feel that their advisor was negligent or when they think a loss should have been avoided. For most people, incurring a loss that could have been prevented or reduced is outrageous.

Imagine that you’re driving and a tire suddenly blows out. Your car swerves and hits another car, and you’re injured. You feel pain and anger, and have to digest those feelings to get over the experience. A month later, you discover that the manufacturer of your tires is being investigated¾20% of the tires have defects, and executives have been covering up these faults. Your feelings now move from anger to outrage, and you want to punish someone for negligence.

Cause for Concern Today

Advisors should be concerned about the likelihood of client rage in the near future if they don’t review and adequately prepare their clients’ bond portfolios. There are good reasons to believe that investors are emotionally quite unprepared for a rising interest-rate environment, in spite of the other market challenges they’ve coped with since 2008.

For many investors, 30 years of falling interest rates and incredibly robust, positive returns from fixed-income investments have instilled a powerful set of assumptions about the reliability of fixed income as a return generator; they’ve set investors up for great disappointment. Most investors—and the majority of advisors—have never experienced a rising interest-rate environment. Rationally, investors know what happens when rates go up, but emotionally, they’re used to the way things have always worked. This natural tendency of human beings to use emotional information to make decisions has created the conditions for a serious client-management challenge.

Avoid Outrage—Strong Emotions Are Not Manageable

Thirty years of the same positive investment experience creates a kind of emotional inertia, and the uncertainties in today’s markets make it very difficult to discern the right thing to do. The rational mind knows that the time to prepare for the inevitable is before rates start to rise, just as our thinking self knows to buy a generator long before the storm is forecast. Unfortunately, our emotional self can be easily locked up by inertia and become resistant to change. Many investors today are reluctant to take action and prefer the comfort of “familiarity.”

Some advisors have fallen victim to the same thinking, believing there will be plenty of time to review clients’ portfolios and recommend any necessary adjustments after the Fed sends signals or once rates start to rise. We believe that this is a shortsighted and dangerous approach, and as we’ve seen recently, there’s often not much time to react. Now is the time to take appropriate and thoughtful actions, to educate clients on the role fixed income plays in their portfolio. Prudent advisors should help clients understand how their bond strategy should be expected to behave, and to suggest appropriate fixed-income strategies that can further diversify a portfolio and provide insulation against the impact of rising rates while still aligning with their objectives. By doing this, advisors can prevent their clients from becoming enraged when they’re unprepared for their fixed-income experience in rising rates.

Act Now Before Events Force You to React

When interest rates rise, advisors won’t be able to manage client’s feelings. Once investors become outraged, it’s too late. The time to act is always before irrational feelings become activated. As we explored earlier, the emotional part of the brain doesn’t use language and isn’t constrained by rational process: an outraged client is potentially unmanageable. With this in mind, we recommend the following.

First, accept the potential dangers of emotional inertia. Human beings rarely change a familiar pattern of behavior until there is a compelling reason to do so. It’s our nature to wait until we get a wake-up call.

In the same way, many fixed-income investors, who are comfortable with the familiar, may not be motivated to review or revise their strategy while they’re still enjoying the benefits of a 30-year falling interest-rate environment. Unfortunately, if advisors wait and allow the markets to provide the wake-up call, clients may be unprepared for how their core fixed-income strategies may respond to a rising rate environment—and may be surprised by experiencing negative returns. It may also be too late for clients to further diversify their portfolios, for the same reasons it’s hard to find a generator at the hardware store the day before or after a hurricane hits your house!

Second, anticipate the normal reaction that clients will have to incurring a predictable loss, and therefore one that can be avoided or limited: potential outrage. Advisors can avoid this by initiating a conversation with clients who will be impacted by rising rates; they need to understand the implications for their future. The prudent advisor will make his opinion known so that each client will understand the problem and see that his advisor is taking the appropriate action.

Third, educate clients about fixed-income strategies available in the marketplace that can help dampen the impact of rising US interest rates—whether it’s credit, a global approach, reduced duration or some other strategy. Whether or not the client chooses to act, when an advisor explains the alternatives that are available, the potential for future conflict is greatly reduced. Importantly, these conversations serve as an inoculation to help prevent outrage.

Finally, record notes about each of these conversations digitally to ensure that each entry is formally time-stamped. Many advisors still make handwritten notes in a journal or file. Such notes can be questioned as to their authenticity. Modern technology ensures that a notation about a conversation and set of recommendations is permanently stored and available for review if there is any question about the advisor’s attention to this issue.

Ken Haman is the Managing Director at the AllianceBernstein Advisor Institute, visit http://ria.alliancebernstein.com.