Secrets of Successful Advisors℠ with Ken Haman
The Surprising Problem with Surprises
May 3, 2023
In this podcast, the hosts discuss the challenge of having difficult conversations with clients during volatile markets. They explore loss aversion as a primal human reaction and its impact on decision-making. The neurological division between thinking and feeling in client meetings is examined, emphasizing the influence of emotions. Advisors are encouraged to anticipate client losses and avoid surprises, and they are provided with a four-step process for guiding clients through difficult conversations.
28:22
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Quick takeaways
- Losses are experienced more intensely when they are unexpected, so advisors should engage clients about possible volatility beforehand.
- Understanding the brain's emotional and thinking regions helps advisors navigate conversations effectively and shift clients from emotional to rational thinking.
Deep dives
Understanding Loss Aversion and Emotional Reactions to Losses
Loss aversion is a primal human reaction in which losses are experienced emotionally about two and a half times more significantly than gains. This emotional reaction is magnified when losses are unexpected or surprising, causing even more intense negative emotions. Financial advisors need to be prepared to address these negative emotions and handle hard conversations with clients in volatile markets. Losses are inevitable, but if the client anticipates them, the emotional impact can be mitigated. Advisors should always work on setting reasonable expectations and interpreting market conditions to avoid surprising clients with losses.
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