Recently, the US women’s soccer team lost the World Cup final to Japan…on penalty kicks.
The penalty kick is an interesting microcosm of split-second decision-making. Standing 36 feet away, the kicker strikes the ball and sends it rocketing to the goalkeeper at about 80 m.p.h. The goalkeeper has just 0.2 to 0.3 seconds to respond. Stopping a penalty kick is considered one of the most challenging feats in sport. Not surprisingly, 80% of all penalty kicks score.
A few years ago, Professor Ofer H. Azar, of the Ben-Gurion University in Israel, conducted a study. Professor Azar is not a footballer. He’s a lecturer in the school of management, and he thought that penalty kicks would be a perfect way to test his theories of split-second decision-making.
After collecting the data on 311 penalty kicks, what Professor Azar found was instructive. Goalkeepers who moved to their right had the worst chance of stopping the ball…just 12.6%. Those who moved to the left were marginally more successful…14.2%. Those who did nothing, i.e. stayed in the center of the goal, had the best chance…a 33.3% success rate.
As might be expected, the desire to do SOMETHING…as opposed to NOTHING (known as “action bias”) can extend to many fields beyond the soccer pitch. Financial advisors, and investors, know this urge all too well.
For investors, the impulse to act may have deep psychological underpinnings. In one of his brilliant studies, Nobel Prize winner Daniel Kahneman probed the quirks of investment decision-making. He discovered that investors had more pangs of remorse when they lost $1,200 because they chose to act, than those investors who lost $1,200 because they left their investments untouched.
For those readers of this column who are financial advisors, I presume that you have handled 1-2 calls from fearful investors over the past few weeks, who have had a bias toward “action bias.” In their eyes, doing something is better than doing nothing.
As a financial advisor, how do you react to this?
Active Listening
Rather than acquiescing to the clients’ frantic instincts, you may want to make sure that you have practiced “active listening” as you attend to your client and their agenda.
“Active listening” is one of the International Coach Federation’s core precepts that all ICF-certified coaches practice in order to gain complete learning and understanding about their client(s). It is the ability to focus completely on what the client is saying and is not saying, to understand the meaning of what is said in the context of the client’s desires. Active listening summarizes, paraphrases, and mirrors back what the client has said to ensure clarity and understanding… and that both the coach and client are absolutely on the same page. Active listening allows the client to vent the situation (without judgment from the coach) in order for the client to move on to the next appropriate steps.
Active listening is a dynamic commitment to understanding how your clients feel and how they see the world. It means putting aside your own prejudices and beliefs, anxieties and self-interest, so that you can step behind your client’s eyes and envision their perspective.
Of course, “active listening” may not be a financial advisor’s sole response to concerned clients. Additionally, financial advisors might dial up their proactive client communications; ensure that their clients are aware of all of their efforts (including active portfolio monitoring), as well as making tactical changes that are consistent with the client's overall investment plan.
From the client's perspective, the key is their understanding is that "active listening" is not synonymous with inactivity...but rather an intentional response to a client's desire to be heard.
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