Have you worked with clients who have a lot of their retirement savings tied up in company stock? I find that these clients are sometimes the most difficult to work with because they resist diversification and often do themselves a disservice by holding onto stock that is not serving them well. If you have a client like this, it’s likely they are experiencing an emotional attachment to their company stock and it’s preventing them from making logical decisions when it comes to their portfolios. If your client has worked for one company for the majority of their career or if they’ve built their own business they will soon be retiring from, they are likely to have a skewed image of what that stock represents and what it would mean to sell it. Here’s why your clients may have an emotional attachment and what you can do to help them ease it.
Reasons Why Your Clients May Be Emotionally Attached to Company Stock
Those who are emotionally tied to company stock are usually not the same as clients who are emotional investors in general. They tend to see the bigger picture when it comes to other investments but have blinders on regarding their company stock. Most of these individuals tend to be very proud people who have a lot of their self-worth and value tied up in the business they have helped build. In their minds, the company stock represents years of hard work, sacrifice, and knowledge. Selling even some of the stock may be painful for them because it negates everything they did to build the business. Some may even feel that to sell the stock means they’ve lost confidence in the future of their company.
If you’ve done a good job of teaching your clients about behavior-based advising, you should be able to help them identify their emotional attachment and guide them toward better decisions. I’ve found that these tips often help them ease the attachment.
How to Help Ease Your Client’s Emotional Attachment
For most of my clients with emotional attachments, it usually doesn’t work out too well when I try to force them to sell some or all of their company stock and diversify. In fact, in most cases, they’ll dig in their heels deeper and develop even stronger emotional ties. I’ve found that these three steps often help them start easing their attachment so they can make practical decisions:
Help Them Understand Their Attachment The first step is helping your client understand that an emotional attachment exists and that it’s clouding their thinking. Once you speak with them about how they equate their stock with how much they put into their career, you’ll likely see a light bulb go on. They probably did not realize this is why they were holding onto the stock so tightly and once you are able to talk about it, it can start the process of detachment.
Speak Logic to Them Once your client has acknowledged an emotional attachment, try speaking logically to them. Help them see what would happen if the company they retire from crashes and they have all their investments tied up in it. Show them how it would affect their life savings and their retirement plan. Then help them see how diversification and putting money into faster-growing stocks or investments can help them live a fuller retirement. This logic often helps them realize how their emotional attachment is holding them back.
Encourage Them to Trust You As an advice-based financial consultant, you have hopefully shown your client the value you bring to their life. After getting them through the first steps, you can usually rely on the relationship you’ve built and ask them to trust you to make the best financial decisions for their future. If they are unwilling to do so, it could be a sign that you need to work harder to help your client understand your value.
Do you have clients who have a large portion of their retirement wrapped up in company stock? If so, they could be hurting themselves in the long run and it’s your job to show them their emotional attachments so they can begin easing them. If you’d like more help mentoring your clients in this area, please give me a call or send me an email. I’d love to help!
