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How Your Clients Can Ruin Even the Best-Laid Plans

Client inertia and procrastination can put your financial plans on the back burner.

Justin A. Reckers and Robert A. Simon, 08/18/2011

"The best-laid schemes of mice and men go often askew, and leave us nothing but grief and pain."

This is an English translation of a piece of wisdom written by Robert Burns in 1785, and it rings true today. We know many advisors who wonder why their clients don't follow up on the well-laid plans they propose. They wonder how a client can pay for the professional advice of a financial planner and then not follow it. They wonder why intelligent and responsible individuals and families can let the financial safety, security, and well being of their loved ones fall by the wayside. They wonder why a husband and father cannot bring himself to follow through on placing an inexpensive life insurance policy to insure against the loss of their income in the event of death. They wonder how a wealthy patriarch can pass away without having made the plans necessary to provide for conflict-free administration of their estate.

There are many reasons why even the best-laid plans often go awry, such as barriers to progress and biases that create delays. Procrastination and inertia are common barriers caused by cognitive and emotional bias that advisors can easily observe and in many cases just as easily implement a positive effect. Understanding the root cause of your client's aversion to progress can have an amazing effect on the results of your hard work and the client-advisor relationship. No advisor likes leveling advice and sending a client away with a to-do list only to never see him again.

We all learn about the concept of procrastination at the moment we are given responsibility for a chore as children. In psychology, procrastination refers to the act of replacing high-priority actions with tasks of low-priority, ultimately putting off important tasks to a later time. Some psychologists believe procrastination to be a mechanism for coping with the anxiety associated with starting or completing tasks or decision-making processes in the presence of uncertainty or risk.

Inertia is the resistance to a change in a state of motion or rest, or the tendency to resist any change. The force of inertia is proportional to an object's mass. In this case the object is a financial decision. The bigger the financial decision, the greater the role the force of inertia will play upon your clients' ability to make progress.

So what causes procrastination and inertia in financial decision-making?   

Status Quo
Status quo bias is the tendency for people to like things to stay relatively the same because the disadvantages of change loom larger than the advantages. When a client has a preference for the status quo they may procrastinate by replacing the high-priority tasks of enacting your financial-planning recommendations in the interest of less important and far less anxiety-producing tasks like organizing files or planning for events far into the future. They do this in order to reduce the importance of the anxiety-provoking decision problem you have laid out in front of them. They may also be seeking an answer to the problem that perpetuates the status quo. In the absence of such an option, they might shut down and attempt to remove themselves from the decision-making problem. This is a defense mechanism to reduce the stress they encounter when forced to make a change. This is inertia.

A preference for the status quo might be encountered in a client with any number of different underlying cognitive biases. Aversion to loss can lead your client to prioritize the realization of gains over the realization of losses. In doing so, he will have diminished the importance of realizing losses and ultimately they will have decided doing so was not necessary. 

Justin A. Reckers, CFP, CDFA, AIF is director of financial planning at Pacific Wealth Management www.pacwealth.com and managing director of Pacific Divorce Management, LLC www.pacdivorce.com, in San Diego.

Robert A. Simon, Ph.D. www.dr-simon.com is a forensic psychologist, trial consultant, expert witness, and alternative dispute resolution specialist based in Del Mar, Calif.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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