3 tips to consider when dealing with a client who is at risk of making poor financial decisions due to stress


By Luke Worthy, Wealth Planner at Kingswood.

It’s a well-known fact that stress can cloud judgement. In any situation, this can be a problem, however perhaps even more so when dealing with money.

We’ve noticed that excessive stress, caused by a number of factors, may prompt clients to make poor financial decisions and regret them afterwards.

Here are three tips to bear in mind when faced with a client who is at risk of making bad financial choices due to stress:

1. Looking at the bigger picture – Clients may feel stressed if their investment values have fallen, or if the news portrays a grim economic outlook for the next however many years. In which case, it’s useful to look back at how similar events played out in the past.

For example, we often show clients a timeline of previous recessions and how long it took for the markets to fully recover. Invariably things aren’t as bad as they seem, and clients are reassured.


2. Making one decision at a time – In times of stress, clients sometimes feel like they must make many decisions at once, leading to ‘analysis paralysis’. Dealing with one financial decision at a time can help reduce the feeling of being overwhelmed.

In a similar vein, we ask clients to review their objectives – do we need to make lots of changes to the financial plan to achieve them? Often the answer is no.


3. Cash-flow and stress testing – We use sophisticated technology to illustrate and project a client’s financial position forward. In times of stress, we revisit these models and build-in the relevant issues, such as market downturns or perhaps reducing regular contributions due to changing affordability.

The result is either a much healthier picture than the client predicted, or it highlights how we might fix the problem before it escalates. Either way, it provides some much-needed perspective and facilitates logical and informed financial decision-making.

As a financial adviser, a significant part of our role is to ensure clients stay the course and prevent adverse decision making in times of stress. Building a strong, lasting and trusted relationship with them is key to helping them reach the full potential of their investments.

Past performance is not a guide to future returns.

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