Mitigating recession-based client anxiety

Although the U.S. is not officially in a recession, many consumers are already carrying the mental baggage of planning for one. A recent MDRT study on consumers’ opinions on a potential recession found that 80% of consumers are at least somewhat concerned, and many are already making plans for cost cutting and lifestyle adjustments.

In the face of economic uncertainty, it’s important for advisors to help clients stay grounded and not jump ship on their financial plans. By understanding clients' anxiety and tailoring advice, advisors can help clients avoid poor decisions in tough economic times.

Identifying the source of anxiety

The onset of a recession can feel intimidating, especially for consumers who aren’t getting their information from trusted resources. Many consumers are getting economic news and advice by listening to unreliable outlets such as social media, TV, friends and family, etc. The financial information clients receive from outside sources can skew their opinions and heighten anxiety. Advisors must be sure to ask questions about how clients feel, rather than assuming, to help clients feel comfortable voicing their concerns.

For example, 87% of consumers surveyed are concerned about increasing inflation. Let’s say a client expresses concern about inflation eroding their budget. It’s the advisor’s job to ask tailored questions, such as “What is your largest monthly expense?” and “What are the costs of your fixed expenses, compared to things impacted by inflation, such as gas or groceries?” to help identify where the client is most concerned. Starting with these types of questions will uncover the main cause of the client’s anxiety and help them understand that the economy isn’t always reflective of what they’re seeing in the media or in their personal finances.

Guidance in high-stress environments

Discretionary spending is often at the top of consumers’ minds amid economic uncertainty, as they’re looking for opportunities to save as much as possible. While 55% of consumers said they would eliminate travel expenses in a recession, another 44% said they would eliminate financial advisory services and 36% said they would eliminate investments. Advisors must showcase the value of their services and the importance of holding onto key financial tools long term to avoid clients making major, sudden changes to their financial plans.

Decreasing investment or retirement contributions may seem like a quick fix to consumers, but panic can set it in down the line if those contributions aren’t added back in. People often get used to seeing the increased cash flow, and they forget to increase their contributions. This negatively impacts their long-term investment goals. In this case, I delve into my clients’ past decisions that are impacting their current situation and provide insight into how we can continue mapping a plan to reach their goals. Helping clients take a step back to reflect on where they’re at financially in comparison to where they’d like to go can shift their perspective in the right direction. This prevents clients from making harsh financial decisions.

Understanding generational differences

Regardless of people’s demographic backgrounds, advisors must respect and understand the rationale behind all their clients’ generational differences. The MDRT study found that millennials are the most recession-conscious generation, while Generation Z is far less concerned about the implications of a recession.

This divide is likely driven by millennial clients wanting to steer clear of the financial stress they've observed in older generations, increasing their awareness of how money affects their lives. On the other hand, Gen Z is less likely to have witnessed some of those struggles, so people may assume that they may not have been as aware of the realities of their situations. While it can be easy to make those assumptions while working with those generations, advisors aren’t supposed to fit their clients into a specific mold – the advisor should be focused on creating a mold that fits each client. Addressing and respecting concerns and fears clients have should be based on that client’s background and financial situation, not on generalizations based on their demographics.

The key to advising in difficult economic situations is to remind clients that their advisor is also human. It can be easy for consumers to get caught up focusing on smaller issues and past decisions they feel may throw a curveball in their financial plan. Advisors should remind clients they know what it’s like to make mistakes and feel anxious in certain situations. Being open will help clients feel comfortable with vulnerability, allowing their advisor to guide them toward the right path in all economic scenarios.

 

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