The slow summer months can sometimes cause more worries for clients, Shafik Hirani encourages advisors to take a humble approach
It’s a bit of a misconception that once work slows down, or we can take some time off, that all our stresses and worries will go away. For many, a bit of time sitting on a dock or hiking up a mountain can actually do the opposite. With more mental space freed up, especially in the slow months of summer, many clients could begin to fixate on new worries. Those could be short-term existential concerns brought on by scary news headlines, or long-term concerns about their big picture that occur once they gain some time to rest.
Shafik Hirani explains that when it comes to decision-making about the future, time can actually be an enemy. Hirani is Senior Investment Advisor at Shafik Hirani's Private Wealth Management of Aligned Capital Partners and an evangelist for a behavioural approach to wealth management. He notes that for many clients, adding free time to think can add an element of ‘analysis paralysis.’
“Time is actually not conducive to decision making, and a lot of people think it is. But when we look at investor behaviour, people don't make decisions when they're afraid. It's fight, flight or freeze,” Hirani says. “That freeze comes from a different part of the brain, physiologically, than the decision making itself. What causes us to freeze is the left brain, the analytical brain, we get paralysis by analysis. So time is an enemy in many ways.”
It's an inverse, somewhat, of the old saying that ‘if you want something done, ask a busy person.’ When people have more time to think and reflect, they end up fixating and worrying. Busier clients will make decisions faster and often with less stress involved. Hirani notes that the current environment is full of stimuli for a client with time on their hands to fixate over.
Geopolitics and global conflicts, trade wars and the theatre of US politics, inflation concerns and worries about unemployment are all playing out on the news, which many people find harder and harder to escape. So many stories compete for our attention and so many narratives compete directly with each other that we find ourselves driving in a proverbial fog. That means, as we try to collect information and analyze data to inform our decisions we get overstimulated, overwhelmed, and stressed.
This summer, Hirani is hearing his clients’ worries focused on a few specific issues. The first is when we will get our next stock market correction. The other is around the current valuations on the stock market. The two areas of concern are, admittedly, connected and Hirani notes that the issue of valuations may be brought up in the logical chain that clients forge between the current state of affairs and a looming correction.
One of the outcomes of that stressed thinking is a flight to surety and unwillingness to take on risk. Clients, he notes, will seek out the best returns possible from a GIC, even when the dividend yields of certain equities are higher. The fear of loss overpowers their desire for gains, making nominally riskier assets like equities appear frightening. It makes technically underperforming but safe assets seem like the ‘correct’ decision.
Hirani’s approach to these worries is not to push directly against them. He notes that when clients have worries, they don’t need to be corrected, they need to be validated. Empathy is key to his approach and with the new concerns that the client brings to him, Hirani revisits the parameters of the client’s goals, risk tolerances, and portfolio construction. He talks through where the client is at, and explores the idea of reassessing risk tolerance. He reemphasizes his own approach and philosophy as well.
Silence is key to Hirani’s approach, as well. Rather than trying to ask ‘gotcha’ questions that highlight any logical fallacies in a client’s worry, he gives them the space to fully articulate their own concerns. That can make the client feel heard and empathized with, but it also gives them space to grapple with their own ideas out loud and may result in them putting aside their worries without the need for a confrontation by their advisor. As other advisors face client worries this summer, Hirani hopes they take an approach rooted in humility.
“Approach clients with far more humility. There is a value, especially if it's a good advisor and a humble advisor that has the ability to empathize with the clients and provide actual, concrete value. They can do the process of connecting the macroeconomic environments, the geopolitical environments and the external sources and how they impact the capital markets to how they impact the client’s internal psychology. If you can put it all together, there is value,” Hirani says. “But the risk of that approach comes from the advisor’s own ego, because we can convey it like they need us, and they must have us. The client doesn't want to be told how great an advisor is, client wants to be told what’s in this for them.”
