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Justin Locke
Emotional breakdowns: How they impact your clients’ money management

Learn to recognize and deal with the emotions that your clients bring to their decisions about money.

February 19, 2013
By Justin Locke

Whenever I start chatting with someone who is either a CPA or a wealth manager, inevitably the conversation veers toward the irrational ways in which some of their clients handle their money.

You probably have your own stories … someone hiding $20 bills in various places around the house, people borrowing money at 5% to invest it at 3%, siblings fighting over an estate. It’s easy to dismiss such behavior as being caused by stupidity or insanity, but the reason so many people behave this way is because people tend to express their emotions with their money.

Full disclosure here: I don’t know all that much about managing money. But I have studied with masters in the art and science of managing and manipulating emotions—first, during 18 years of playing bass with the Boston Pops, and then through 15 years of making tear-jerking fundraising videos.

I’ve learned that emotion has a major effect on how people handle their money, leading me to create what I call “The Periodic Table of Emotional Energies.” Here is a quick look at four of the most powerful emotional energies that make up the table.

Emotional energy No. 1: Loyalty

Human beings everywhere are intensely loyal creatures. Most people are loyal to their family, and they may also be loyal to their company, their sports team, their school, their country, or all of the above. Being loyal is its own reward; it just feels good. Loyalty is a tremendously consistent, and very powerful, emotional force.

The problem is that people can be extremely loyal to something that really isn’t good for them. For instance, they may be loyal to a financial school of thought that is sheer nonsense—and no matter how many spreadsheets you show them, they’re still resistant to any changes.

When dealing with a client motivated by loyalty energy, even the most well-intended, rational thinking can get you into trouble. That’s because your suggestions may not be seen as an attempt to be helpful. Instead, they are interpreted as blasphemous disloyalty.

The result? Your “disloyalty” is perceived as a threat that prompts the client to become even more loyal to his or her original ideology or course of action. One solution is to avoid contradicting or pointing out the flawed logic of loyalty energy. Instead, try to couch the discussion in neutral or hypothetical terms.

Emotional energy No. 2: Trust.

The entire monetary system is based on trust. Without it, there would be no money, no credit, no banks, no lending—nothing.

Yet the trouble with trust is that human beings have an ingrained need to trust something. All too often, they put their trust in something that they shouldn’t.

And when someone’s trust is violated, he or she still has the innate emotional trust energy. But now it has gone to its extreme negative polarity: mistrust. And mistrust causes all sorts of irrational behaviors, such as stuffing money into mattresses.

Trust takes years to establish, but only a few moments to destroy. That’s why it’s important for CPAs to always be open and transparent regarding their advice. 

Emotional energy No. 3: Fear.

We tend to think of fear as a bad thing, but it helped our ancestors survive in difficult situations. While fear may have proved helpful for handling saber-toothed tigers, it’s not always as handy when it comes to money management.

The emotion of fear affects both time and perception. In terms of time, fear will either make people freeze up and do nothing, or it will accelerate their decision-making, prompting them to react recklessly. Both results can be disastrous when it comes to “market timing.” Fear also distorts perception, making bad things seem much worse than they actually are, or creating the illusion of bad things that don’t even exist.

One of the biggest fears people have is of looking foolish, so when you see a client is afraid, the best approach is patience, sympathy, and acceptance. Helping clients overcome their money management fears takes extra time and effort, but also strengthens the client-adviser relationship.

Emotional energy No. 4: Desire.

I once knew a woman who ran a junk shop. She had placed exorbitant prices on all this stuff that I thought was worthless. So I asked her, “Why do you charge such high prices for this stuff? Won’t it move faster if you charge less?”

She replied that, “Price is not the issue. To most people, this stuff is worthless. But if they really want it price is no object.”

It’s important to take the time to identify what your clients want to do with their money. Some of their financial desires may be prudent, others not so much. But understanding those desires will help you offer advice that’s better suited to each individual client.

That was just a quick sampling of the Periodic Table of Emotional Energies. We had to leave love, pride, and altruism for another day. But what we’ve covered so far shows us some of the motivations behind what initially seemed to be random, irrational behaviors from our clients. When you start cataloging them, you will find that they are fairly consistent, even predictable, manifestations of common emotions.

These “emotions of money” are often in conflict with the rational, mathematical choices that you would recommend for your clients. By understanding these emotions, CPAs can better help clients make the right decisions when it comes to managing their money.

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Justin Locke is an author, playwright and speaker. His latest book, “Getting in Touch With Your Inner Rich Kid,” addresses the emotions of money and wealth. To find out more, visit his website.