"I Saw the Movie": How Your Clients' Brain Circuitry May Be Short-Circuiting Their Investment Plans

Mitch Anthony

I was on a flight from San Francisco when turbulence startled the flight attendant carrying drinks to the seat across the aisle. She performed an airborne impression of a surfer and managed to serve the drinks without spilling a drop. I remarked, “You must have been quite the surfer.”

She quipped back, “I was…until I saw the movie.” She noticed my quizzical brow and leaned in to explain, “Jaws. I grew up on and in the ocean, but after I saw that movie, I never went into the water again.”

In a flash, I understood a problem of the modern investor and the challenge before today’s financial advisor. Some people have had real near-death experiences but others have had imagined experiences that seem very real. Both types of experiences have the potential to scare people out of the water––forever. It makes no difference to the human brain whether or not it really happened. There are millions of investors who are no longer willing to “enter the water” and I fear, that for the vast majority, it has more to do with the “movie” than it does with their actual experiences.

As cliché as, “You don’t lose until you sell” sounds to some, at the nucleus of that old phrase is an atom of truth. If your balance in 2011 resembled your balance in early 2008,you lost three years––but you didn’t actually lose any money, unless you sold out of panic. There were those who lost fortunes that they never recovered, but the vast majority of big losers were those who sold at the ebb of fall of ‘08 to the spring of ‘09 and parked their boats in the shallows of rock-bottom savings accounts. The actual damage for most 401(k)s was only on paper while the actual damage of the majority was back in the black (for the most part) sometime in 2011. The statements of 2008-09 now float like so much flotsam on the sea of troubled memories. For many of us, it was not real and permanent damage but imagined––as time would demonstrate. But at that point of time, it seemed like the world was going to end.

Look at your clientele and ask how many were actually “devoured by sharks” and how many were simply petrified into inaction by the accompanying drama. In a panic, the masses are titillated toward survival instincts. They see the fin protruding out of the water and so they run to the shore. As Mayor Vaughn in Jaws said, “Martin, it's all psychological. You yell barracuda, everybody says, ‘Huh? What?’ You yell shark, we've got a panic on our hands on the Fourth of July.” In this business, we need a clearer understanding of how the investor’s brain processes traumatic events––in real life and as it gets filtered through the media by pundits who are addicted to yelling, “Shark!”

Every emotive experience in life plays a role in paving new highways of thought in our brains. This system of thought circuitry, informed by electronic and chemical release, is called the synapse system and is the chief catalyst for all decision-making in life. Chemical synapses allow neurons to form circuits that make up our central nervous system, which in turn controls our physical and mental functions.

By understanding these paths of thought and how they were formed, we can predict behavior fairly well in certain circumstances or situations. Clients’ decisions (or their indecision) will follow the circuitry in their brain, which was formed by definitive experiences. These synapses are biological computations that drive our perceptions of situations and our controlling thoughts in decision-making.

“What you've got here is a perfect eating machine. It's a miracle of evolution. It does nothing but swim, eat, and make little sharks.”— Captain Quint in Jaws

My wife doesn’t eat fish because she choked on a bone when she was three years old. Now her throat clenches at the mention of eating fish. This is an example of how the circuit of thought and biological response functions. Synapses are like idiosyncratic road constructions that determine the direction of thoughts in each individual’s brain. The adult human brain is estimated to contain from 1014 to 5 × 1014 (100–500 trillion) synapses. Don’t worry: you don’t have to understand all 500 trillion synapses driving your clients’ behaviors––just two or three that are driving their financial decisions. Behind the behavior you observe, whether it is a poor decision or the lack of decisiveness, is a formative experience or two. If you want to influence a client’s behavior, you’d best learn about those formative experiences and the conclusions they have drawn from them. While you may not persuade them to eat halibut, with some education, they just might get comfortable with the lobster bisque.

Brody:  “Is it true that most people get attacked by sharks in three feet of water about ten feet from the beach?”

Hooper: “Yeah.”

This Hollywood-influenced “fact” from Jaws is most likely the greatest remaining vestige of the movie still lodged in the memory of viewers––and I’m guessing the thought that kept the flight attendant out of the water evermore. The fact of the matter is that the majority of attacks (54%) happen in 24-36 feet of water. Attacks in shallower waters, such as surfers, are in depths of 6-18 feet. Not only do people get the facts wrong, the reports often come from unreliable sources.

An expert on shark attacks* noted, “It was sobering to find that 89.9% of the files on human shark attacks, accounts of what happened were based primarily upon information supplied by persons who were neither the objects of the attacks nor were they even there at the time to actually see what happened. To be completely realistic, therefore, it must be conceded that the ISAF (International Shark Attack File) is made up largely of hearsay evidence, mostly documented long after the event happened.” It should also be noted that, according to the Shark Attack Committee, the total number (108) of authenticated cases of shark attacks reported from the Pacific Coast of North America during the Twentieth Century is “…insufficient to determine the probability, or odds, of encountering a shark when entering these waters.”

And yet, there are millions who refuse to enter the water because they perceive the risk to be too great.

2008 and 2009 were real. I understand that. In retrospect, we now know, for those who rode out the storm, that greater damage was done to psyches than to portfolios. A 40% dip feels much worse in the limbic cortex than it does on a balance sheet. Today’s investors can ill afford to be completely out of stock market waters. Their greater risk is in outliving their funds––and this likelihood becomes more probable if they are not willing to entertain a degree of market risk.

For your clients who have been completely scared out of the water, I would encourage a conversation that explores their experience through these tumultuous times. With the preface, “It’s important for me to understand each client’s best and worst investment experiences so that I can create a plan you are comfortable with,” you could discover the same synapse-forming experiences by asking the following questions:

• “What has been the scariest experience you have had as an investor?”

• “What conclusions have you drawn regarding the events of the past three years?”

• “Do you know any people who were ruined financially? How did it happen?”

An important aspect of this discovery is to learn which experiences were firsthand and which came by report from another source. Either way, via firsthand experience or secondhand processing, each client’s synapse system has been uniquely affected and you will be able gain a clearer understanding of how they think and why they think the way they do. How are they properly interpreting their own experiences? Are they drawing logical conclusions from the stories they have heard? These are critical questions because misinformation and misinterpretation run rampant. By exploring both their experiences and their observations, you can help clients process their own investment thought patterns. It’s much easier to manage the relationship if you know what experiences they have been through––as well as what movies they have seen.

(* H. David Baldridge)

© 2012 Mitch Anthony.  This article first appeared in “Financial Advisor” in January 2012.

Mitch Anthony is the founder and president of the Financial Life Planning Institute, the leading provider of financial life planning tools and programs. 

For more than a decade, Mitch and his team have provided training and development for both individual advisors and major organizations throughout the world. Mitch personally consults with many of the largest and most-recognizable names in the financial services industry on both financial life planning and relationship development.

Mitch has been named one of the financial services industry’s top “Movers & Shakers” for his pioneering work, and is interviewed by the media on a regular basis. The Institute is partnering with both Texas Tech University and the University of Georgia to develop financial life planning programs for their undergraduate programs. Mitch is a popular keynote speaker, columnist for Financial Advisor magazine, and host of the daily radio feature, The Daily Dose, heard on over 100 radio stations nationwide.

Mitch is also the author of many groundbreaking books for advisors and consumers, including perennial bestseller StorySelling for Financial Advisors, cited by “Financial Advisor” magazine as the number one “must-read” book for financial professionals. Mitch’s other books include From the Boiler Room to the Living Room, The New Retirementality, Your Clients for Life, Your Client’s Story, The Cash in the Hat, and The Bean is not Green. For information on these books and more resources, click here.