Dealing with the irrational clientArticle added by Steve Lewit on December 18, 2012

Steve Lewit

Buffalo Grove, IL

Joined: February 27, 2008

My Company

The cure for client irrationality is to get clients to see their irrationality, and the only way they will see their irrationality is to push them further into it until it becomes so overwhelming that they can do nothing but see and experience the reality of it.

We've all met irrational clients — those who have expectations, ideas, theories or opinions that are out of touch with reality. It's the person that walks into your office and claims that he or she has never lost money, or is averaging 18 percent over the last 10 years, or believes that the Dow is going to 25,000, or alternatively, that the whole economy will collapse and the country will find itself in the midst of a shooting revolution. The list of irrationalities goes on and on, and we, as financial professionals, have to meet these irrationalities head on and defuse them or, ultimately, lose the client along with the sale.

When people seem irrational to me, the first thing I want to do is get to the root of their irrationality. I have found that irrational thinking falls into four categories, all of which are part of a bigger, more global category: that of the client being out of touch with their reality. That's why I keep telling you that our job isn't to sell, but to get people into reality; and once we do that, the sale will take care of itself.

I classify the root of all irrationality in these four ways:

1. Fear — This is the dominant root of most all irrationality and the emotions which accompany irrational thinking. Fear is an inner feeling percolating inside us that says that we are somehow in danger. That fear can often be recognized and identified, and can also lay below the surface where we don't even know we have it. If you track most irrationality back to it's deepest root, you will find that the root is fear.

2. Misinformation — In today's world, we are bombarded by information. The positive side of that is that the information is available; the negative of that is that much of that information is inaccurate or in conflict. Misinformation promotes insecurity and mistrust and, when people buy into bad or biased information, they become irrational in their thinking.

3. Hope — Hope becomes irrational when it is totally divorced from any kind of real data. For example: “I hope the market will go up even though it's going down, and I'm willing to make decisions based on that hope.”

4. Beliefs — When people want to believe something, again, without having any data or accurate information to support that belief, such as, “I'm a very positive person and I believe that the market will go up,” or “I believe that my income will be okay and that I'll be able to figure it out” (even though all the data says otherwise).
Once you know the root of the irrational, then the next step is to defuse it.

Most agents make the mistake of trying to get people out of their irrationality. I do the opposite. When I've tried to convince clients that they are being irrational, they would just fight back. Instead, I go with their thinking and bring their irrationality to such a high pitch of being totally ridiculous that the client recognizes his or her own irrational thinking and then, without any convincing from me, they defuse their irrationality by themselves.

Here are some examples:

Example No. 1 — Belief or hope

Client: I believe the market is going to go up or, I've been making 10 percent and haven't lost money in the past.

You: Interesting. In that case, I'm thinking that you should be putting more money into the market and take advantage of that.

Client: Well, I could be wrong.

You: Paul, your belief is so strong that I'm feeling that you should go for it and that keeping funds out of the market just won't be very satisfying for you.

Client: Steve, my belief isn't really that strong.

You: I don't understand.

Client: Well, this could happen; that could happen; and that other thing could happen. These are crazy times.

You: Oh, I see. So, where do we go from here?

Client: Let's look at some safe money possibilities for a portion of my money. I'm feeling that that would make a lot of sense.

You: Are you sure? You could be right about the market, and if you are, you’re going to be very disappointed.

Client: Uh, as I said, I could be wrong, too. Let's take a look at my safe options.

You: Well, if you insist, that's okay with me.

Example No. 2 — Misinformation

Client: I don't like annuities.

You: I understand. Let's go in a different direction then.

Client: But CDs and money markets are making nothing.

You: I understand. But as you know, there is always a trade off. We could manage your money in one of our conservative portfolios which have minimal downside risk. In that way we could get a better return and you could probably live with the risk.

Client: That's not guaranteed, is it?

You: No, it isn't. But although past performance is no an indicator of future performance, we do have a pretty good history of very little downside risk.

Client: Yeah, but then I'm back in the market where I don't want to be.

You: I think we are at an impasse and I'm not sure I can help you.

Client: You mean my only alternative to get a decent return and protect my money is with annuities?
You say: I don't see any other option — and you don't like that one — so I don't know how to help you. Perhaps you can just live with everything exactly the way it is.

Client: No. Maybe I should take a closer look at those annuities.

You: How about we do this: I'll teach you how they work, and then you tell me if you want to consider using them. Fair enough?

Client: Fair enough!

Example No.3 — Fear

Client: I don't trust anybody.

You: Well, with all due respect, may I be candid with you? I think this meeting might be a very short meeting!

Client: Well, how can I trust you?

You: You can't. We don't even know each other and it sounds like you've been burned so many times in the past that you probably can't turn the corner and might be better off going it alone.

Client: That's not working out too well — that's why I'm here.

You: I understand. Trust, however, is a big deal. We could do a lot of work together and then find out that you can’t get beyond that, and all that work will go for naught. What do you think we should do?

Client: Well, if you're willing to try and work with me, I’ll do my best to work with you.

You: I don't know. I'd like to help you, but I'm feeling pretty insecure about working with you and then not being able to get to a point where you will allow me to help you.

Client: Look, I need some help. I promise you I won't waste your time.

You: Hmmm. You sound pretty convincing. Can I trust you about that.

Client: You have my word. I will not waste your time.

You: OK, you've convinced me. How about we do this: At the end of each meeting, we check in with each other about this trust thing, and if either of us thinks that we can’t trust the other, we just end the meeting process and part ways as friends?

Client says: Fair enough.


The cure for client irrationality is to get clients to see their irrationality, and the only way they will see their irrationality is to push them further into it until it becomes so overwhelming that they can do nothing but see and experience the reality of it. At this point, they will either begin to get more real with themselves (and you), or end the meeting process, either on your volition or their own.
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