The Psychology of Fear

02.11.2016

Recently, Harris Poll conducted a survey on American investor attitudes toward professional financial planning. The survey indicates that a majority of respondents expressed some degree of fear about meeting with a financial advisor. To me, the issue is not the veracity of this conclusion (which doesn’t surprise me), but rather, what inspired this type of response in the first place.

To understand these results, we need to understand the psychology of fear. One respected explanation of the human fear mechanism is known as Rachman’s theory of instructional fear acquisition. This theory proposes that a child seeing an adult scream at the sight of a snake produces a learned fear response where none previously existed. Observed behavior cues aren’t the only way fear can be learned. Negative associations with odors, sounds—even words—can also imprint a fear response.

Understanding that we learn fear both consciously and subconsciously and that we are bombarded daily by an incessant stream of acquired fear signals should be enough to warn us to be on guard against these irrational signals, especially as financial advisors.
We see politicians, the press and even marketers use this psychological tool against us regularly. They do this because it is a way to command our attention. Study after study shows that fear is a far more powerful motivator than greed when you are asking people to take immediate action to change how they view the world. By changing your client’s world view, you can offer them solutions for overcoming this learned fear of interacting with and listening to financial advisors.

What is lost in all of this is the mathematical probability of most fear-based risks. Nearly 30,000 Americans die each year in automobile accidents. Yet, the population became fear-struck when the story broke on the Ebola virus reaching the U.S. (Now it’s the Zika virus.) The media programs us with irrational fear and ignores the fact that the odds of acquiring either disease are miniscule.  

If we were proportionately worried about risk, the nightly news would be carrying dire warnings about the risk of driving and what precautions to take in order to be safe. Since childhood, we have accumulated a lifetime of experience driving cars. From our earliest memory, most of us had no reason to fear automobiles. Rather, we saw them as something that led to a new and better life. We were instructed in a positive bias and we acquired that belief.

The implication of understanding this origin of fear is that it gives us a tool to help clients recognize acquired fear—and the ability to understand what we should really do in terms of managing risk in our portfolios. The fear of financial advisors stems from the extremes of the Bernie Madoffs and the Wolves of Wall Street. This has conditioned the public to distrust financial advisors. The antidote is to spend time with clients, teaching them how wise counsel empowers people, contributes to success and helps them acquire the skills and beliefs to successfully build and sustain wealth.

Frank Muller

As CEO of Provasi Capital Partners, Frank Muller brings nearly 30 years of experience in building and managing multi-channel distribution services. Frank has been a featured contributor in numerous industry publications, bringing his unique insights and perspectives to relevant issues impacting financial advisors and their clients.

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Frank Muller
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