In this time of coronavirus-induced social distancing, following the herd physically—or financially—is probably a bad idea, says Samantha Lamas, a behavioral researcher at Morningstar.

While officials are warning people to stay six feet away from each other, Lamas said going with the group when it comes to making financial decisions may be just as bad.

“We are more prone to herding behavior when making difficult decisions," Lamas said in a statement. "In everyday life, when we’re not sure about something, [we often] follow the crowd. So, if investors are not confident about their investing-related expertise, their minds may automatically choose to follow the crowd. Unfortunately, when it comes to finances, the crowd is usually running in the wrong direction. Herding bias is especially prevalent during times of uncertainty.”

Financial advisors can help clients fight the desire to follow the crowd.

Keep clients informed, Lamas said. “This is a great time to talk to clients about their financial plans and emphasize why their portfolios are still well-positioned to reach their financial goals.”

Coronavirus may continue in the short term, but long-term impact looks to be minimal, Morningstar said.

An advisor may want to inform clients about the fees and tax implications of trading, and remind them of people who cashed out during the 2008-2009 global financial crisis and ended up worse off than those who stayed the course. Advisors also may want to help clients buy investments now at a discount and turn the anxiety over volatility into the excitement of investing.

Advisors also can be subject to their own behavioral biases that work against them and their clients in troubled times, said Linda Eaton, executive vice president of Cannon Financial Institute, a professional development firm that works with advisors to hone their skills.

Advisors need to help their clients fight the fear of loss. “People remember loss so vividly that they are more likely to act in a way that they believe will minimize loss, rather than bring them gain. As a result, extreme market volatility has the tendency to influence irrational investing decisions,” she said.

“The recent market volatility is making investors reminisce on their losses from 2008," Eaton said. "In the midst of this uncertainty, advice derived from behavioral finance can help advisors better manage their clients' emotional impulses, expectations and pessimistic outlook.” 

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