Whether it’s an illness, a divorce, a death in the family, a reckless adult-child or some unforeseen disaster, a traumatic event can make even the sanest clients become erratic, or perhaps self-destructive. As an advisor, you have to tread carefully. How can you keep a client in anguish from making matters worse? What should you do to steer him or her in the right direction without alienating the relationship?

Never Overreact
“You should never, ever overreact,” cautions Cary Carbonaro, managing director at United Capital in New York; Paramus, N.J.; and Clermont, Fla. “Always take the time to revisit with clients their present needs and future objectives, [and] then you can shift or change course if needed.”

It helps to start by getting at the underlying emotions. “Emotions subconsciously drive our behaviors, and it’s better to get to the root of the emotion and bias in order to understand the behavior and work toward a suitable solution,” says Carbonaro.

But be careful not to let that take too much time. “Once you assess the risk and identify a solution, then you move as fast as possible to react to the unexpected situation,” advises Ben Barzideh, wealth advisor at Piershale Financial Group in Crystal Lake, Ill. “The window of opportunity to fix a problem or effect change can close.”

Guidelines, Not Rules
Your reaction may be a sort of short-term Band-Aid or a complete overhaul of the client’s long-term plan. Long-term plans aren’t etched in stone, after all. They’re guidelines, and they can be tweaked if necessary. “You change course when it becomes clear that the agreed-upon plan will not be followed,” says Joseph Nacca, a vice president at Sage Rutty & Co. in Rochester, N.Y.

But that redirection has to be made with the right tone. “Taking a paternal attitude and scolding the client might be applicable to certain client personalities, but I have never seen success with that approach,” says Nacca. “Instead, I’ve seen success by taking a soft-spoken, empathetic yet matter-of-fact approach. Conceptually walking a distressed client down the various paths of the immediate and distant future via a series of ‘what-ifs’ can paint a vivid picture of the consequences of their decisions now.”

Besides helping get your client back on track, this can have an added benefit. “Client mistakes can actually offer the opportunity to deepen relationships,” he notes.

Empathy, Not Sympathy
Yet maintaining this empathetic tone may not be easy. The trick, suggests Brian Heckert, founder of Nashville, Ill.-based Financial Solutions Midwest, is to understand the difference between empathy and sympathy. “The best surgeons in the world have empathy and not sympathy,” he says. “If they had sympathy, they could never make an incision to cure what’s ailing their patients. It’s the same for advisors.”

Others stress being reasonable but not judgmental. “I always remind clients that they are paying me to be an unemotional voice of reason,” says Katie Connell, a divorce attorney and partner at Boyd Collar Nolen & Tuggle in Atlanta. “I may feel for their distress, but that’s not why they are paying me. Then I point out that they won’t always be in crisis. They need to factor in both the present situation and the long-term considerations. Finally, I’ll often advise that they seek the input of another outside professional, be it a financial planner or a mental-health counselor. I’ll say, ‘Give yourself a break. You’re going through a stressful time. Seek expert assistance.’”

Having Patience
This balance of rationality and compassion may not come easily. “[It] requires patience and support,” says Lorraine Fox, director of wealth management at Aspiriant in San Francisco. “Remaining objective, expressing empathy but helping a client understand the steps he or she needs to take allows the client to feel supported.”

For clients it may become a learning experience, she adds. “Financial planning has a huge educational component,” says Fox.

Advisors may find this especially stressful. “What can be trying for an advisor is when a client’s emotion dictates a strategy change although long-term goals have not changed,” says Olivier Cornet, a managing director at JSF Financial in Los Angeles.

Needless to say, they must not lose their cool. “A major role of an advisor is to keep calm in emotion-driven situations and help clients focus on what is important such as reaching agreed-upon financial goals,” says Cornet. “Unexpected events that can trigger erratic behaviors should have ‘contained consequences.’ The advisor’s role is to plan for such events and support clients when they occur.”

Panic Triggers
Sometimes those triggers can be foreseen, but often they are insidious. “Usually, the triggering event is a symptom of a larger problem that I’m already aware of,” says Terri Munro, a senior financial planner at Atlanta’s BT Wealth Management who specializes in financial planning for women getting divorced. “For example, maybe I’m already helping the client through a divorce settlement. Then something triggers a reaction, such as a parent’s dying or a child’s acting irresponsibly, and she suddenly goes into a tailspin.”

Translation: The client throws caution to the wind and starts overspending. “In that situation, I’ll try to do a triage at first. I try to make sure that I’m understanding the entire situation,” says Munro. “That means a lot of repeating back to them, saying, ‘This is what I’m hearing you say.’ Then I try to keep very focused and say, ‘This is what we do first, second and third.’ I suggest concrete action steps.”

She tries to stay cheerful, upbeat and concise. “I don’t try to tell them how to feel,” she says. “I’m not a psychotherapist, at least not officially. But recognizing that they are at a tender time, keeping the conversation concrete and actionable can be very helpful.”

Make no mistake: a degree of unofficial psychotherapy may come into it. “Part of our job as advisors is not only to advise on appropriate investments but also to be part-psychiatrist to help settle clients down so they are not so emotional or irrational,” says Drew Horter, founder and chief investment strategist at Horter Investment Management, an RIA in Cincinnati.

Stay The Course Or Change Direction?
To be sure, there’s no one-size-fits-all solution. How an advisor reacts to irrational client behavior depends on the situation. “The severity or the time-sensitive nature of an issue drives how intense the response will be,” notes Jared Feldman, a partner in the private client group of Anchin, Block & Anchin in New York. “When the issue requires it, you may need a team that can put all hands on deck. An organization that works as a team can work through almost any issue.”

It can also help break down what seems to be an insurmountable crisis into smaller, resolvable pieces. “This ultimately allows clients to see the specific issues involved and how best to respond,” says Feldman.

Emergency Funds
A degree of urgency can be mitigated with careful planning. “Good comprehensive financial planning incorporates emergency funds in case of trauma or distress—typically three to six months of predicted monthly expenditures,” says Kristen Fricks-Roman, a senior vice president at Morgan Stanley in Atlanta. “Sometimes the client’s situation is so dire that a change to his or her financial plan is needed to accommodate a longer-term disability or perhaps a terminal illness. It is best to begin making adjustments to financial plans as soon as these situations come to light.”

Because such events are not uncommon, a “robust emergency fund is a must,” agrees Colleen Bowler, a Dallas-based financial planner with Lincoln Financial Advisors Corp. “Also, having built a relationship over the years through a comprehensive, client-centric financial-planning process, and knowing what is most important to the client, helps me guide the client through that trauma or distress. It’s very different from a ‘product sales’ relationship.”

Tough Love
Yet there are cases that can’t be resolved. “I have to still act professional and keep my composure,” says Barzideh, “[but] I can’t make them do anything. We will ultimately fire a client that is being self-destructive and not listening to our advice.”

Some compare this to tough love. “Sometimes clients can be their own worst enemies,” says John Navien, a financial advisor with the MetLife Premier Client Group in Boston.

He had a client whose brother died suddenly in an accident. “He wanted to announce during the funeral that he had established a trust fund for his three nephews,” recalls Navien, who immediately took action. While looking into how to establish such a trust fund, he talked to the client about taking time to meet with the sister-in-law to ensure that a trust was the best tool for her children. “While the client was eager to help his sister-in-law as much and as soon as possible, ultimately he realized that it was important to get it right,” says Navien.

Whether or not clients in distress can be so easily set straight, it behooves advisors to be prepared for the worst. “Unfortunately, there are times when clients act in an irrational manner that can jeopardize their financial well-being,” says Tom Birrittella, senior manager at EisnerAmper Wealth Advisors in New York.

That’s when they probably need their advisors the most. “You are the clients’ lighthouse qthat continually helps guide them in the right direction,”
he says.