How To Handle Clients In Distress

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.