Why Clients Put Off Planning

Empathy based on knowledge

“I’m not empathetic,” said no advisor, ever.

But unless you understand how your client is thinking about elements of your financial plan, you may regard their resistance as arbitrary. That perception impedes your ability to be empathetic.

What’s ironic is that many advisors have the same reluctance to confront their mortality or plan for the future as some of their clients.

I was consulted several years ago by the widow of a trust and estate attorney. Her husband died suddenly from a heart attack at age 62. He didn’t have a will. I asked her why he never prepared a will, since doing so was the daily grist of his practice. I’ll never forget her response: “I guess he never thought he would die.”

Temporal discounting

“Temporal discounting” refers to “an individual’s tendency to perceive a desired result in the future as less valuable than one in the present.” It’s sometimes called “time discounting” or “delay discounting.”

The estate planning lawyer placed a higher value on his current activities than protecting his loved ones in the event of his death. Smokers elevate the pleasure of smoking over the health consequences likely to occur in the future.

As Mark Leary, Ph.D, explained in this helpful article, when we engage in temporal discounting, we reduce self-control and willpower.

Those who engage extensively in temporal discounting may also suffer from clinical disorders, including substance abuse, attention-deficit hyperactivity disorder, obesity and compulsive gambling.

Viewed through the prism of temporal discounting, it’s much easier to empathize with a client who is less than enthused about consulting with a financial planner, disclosing intimate financial details and confronting their mortality.

It’s much easier for them to ignore potential consequences and defer dealing with stress-inducing issues.

Overcoming temporal discounting

Acknowledge temporal discounting in your discussions with clients (especially with millennials who may perceive retirement as being so far in their future they can’t relate to it).

Ask questions like:

Can you envision what your retirement will look like, or does that seem like something so distant you have trouble imagining it?

That type of inquiry may stimulate a discussion of the perils of temporal discounting.

Next, as part of your financial planning, automate at least part of the process. One study found a significant increase in retirement plan savings when employees agreed in advance to increase the percentage of their salaries after receiving a pay raise.

Automation mitigates temporal discounting because it eliminates a choice between a present and future award. It replaces that choice with a default path, which employees are more likely to follow.

This article in Hustle Escape suggests creating short-term incentives. Find out what the client really enjoys and suggest something like: “When your 401(k) reaches x dollars, take that trip you’ve always wanted to Hawaii.”

Finally, studies have found that our choice between a current and future reward is heavily influenced by the way alternatives are framed, even when the options are the same.

Presenting each alternative as a series of outcomes and referring to the “explicit zero” in each outcome, has been shown to reduce the impact of temporal discounting.

When participants were given the choice between receiving $5 today or $6.20 in 26 days, most chose the immediate reward, demonstrating the impact of temporal discounting.

Reframing the choice as follows, reduced temporal discounting: ‘‘Would you prefer [A] $5 today and $0 in 26 days or [B] $0 today and $6.20 in 26 days?”

The authors of the study theorized that including an “explicit zero” as an option caused the participants to view the choice as a sequence and encouraged them to select the improving sequence.

In the financial planning context, frame the choice of saving for retirement versus short-term spending as: “Would you prefer x dollars today and $0 in 10 years or $0 today and y dollars in 10 years?”

Above all, be empathetic to the mind-set of your clients. Temporal discounting is real and powerful. Overcoming it takes awareness and effort.

Dan trains executives and employees in the lessons based on the research on his latest book, Ask: How to Relate to Anyone. His online course, Ask: Increase Your Sales. Deepen Your Relationships, is currently available.

Read more articles by Dan Solin