Understanding how fear is a terrible decision maker and how to work with clients to understand it

The clients with the least amount of confidence in their abilities will be the most susceptible to fear-based decision making.  Reinforcing a client’s past performance history can help move them away from fear-based decision making.

Countless research reports show that clients who respond to market changes based on fear harm their retirement readiness. But fear impacts decision making more than just by adding additional transaction costs or advisor fees. Fear impacts decision making in three key areas: it leads to poor performance through procrastinating or failing to take action; fear of failure may be based on the wrong values or valuing the opinion of the wrong people; and fear limits growth.

Fearing that you can’t do a task or won’t be able to do the task properly often leads to thinking that another version of you later might be able to do it. It’s as if you think the version of you working on the new investment plan today is somehow less smart or able than the you that will work on the plan tomorrow. It’s nonsensical, but oh so common. The problem with procrastinating is that you hand your best cards over to fear in that game. By waiting, you give yourself less time to research, proofread or play devil’s advocate.

Fear also leads to total inaction or even analysis paralysis. If a client sets a lofty goal, like overhauling an investment strategy to be more responsive to employees’ concerns and create more of an ESG approach, they may overshoot the practical in favor or what they think they should do or what seems impressive. And then they fear that they will never be able to accomplish those goals.  They don’t even approach the beginning pieces of the task, for example, to convene the proper individuals to consider the overhaul. But, advisor can take a choice card from fear on this by practicing goal setting. By setting small goals and benchmarks, Advisors can bypass the analysis paralysis and get moving on the practical side of the goal.

Fear may be based on the wrong values. If a client’s fear around performance is crippling, it could be that the fear is based on something other than the performance itself. Worrying about comparison to other companies or past employees may impact how clients make decisions.  Asking whether the comparison points are valid can help unstick the fearful client. Benchmarking and comparison is a helpful skill in determining whether growth is appropriate and whether a client’s job performance is on par, but comparison to some ideal or to companies with other structures or resources isn’t.

Fear limits growth. Allowing fear to win in any game means choosing against growth. Clients may can choose a course of action because they fear trying to find a new one, or they may choose to grow with just a small pivot in strategy. For most decisions based on fear, clients don’t just hand their cards over to fear, they hand their cards over to another person. That might mean in making decisions about strategy based on a fear of market scarcity, they give power to the naysayers at the company. One writer said that the growth-based decisions he made were the stories he told at parties later. The fear based decisions were those he told to friends over drinks about regret. Having clients who can understand how fear limits growth can help them make better decisions.

How can you help clients tell if they are making a decision out of fear or towards growth? Chaira Mazzuco suggests that you ask if:

  • they are afraid of some element of the change being unknown and requiring them to change or grow;
  • they are afraid of being rejected or kicked off the island if they choose the a different option;
  • they have a feeling in their gut that the decision isn’t right or their chest feels tight about the option they are working to choose;
  • their reasoning for choosing one option is based on negative thoughts about themselves

At the end of the day, the clients with the least amount of confidence in their abilities will be the most susceptible to fear-based decision making. Improving or reinforcing a client’s past performance history can help reinforce their confidence and move them away from fear-based decision making.

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