Turn That Frown Upside-Down: Counterfactual Framing for Financial Advisors

And I'm noticing that, I was hoping that you'd be coming onto this podcast with a big smile on your face, which you have, which is fantastic. The title of our podcast and the places that we're going to explore is "Turn That Frown Upside Down". The idea that we're going to be exploring is counterfactual framing for financial advisors. And everybody, what we're going to try to build on with that goofy title and maybe a little bit more technical of a descriptor, is we're going to bridge a little bit on what we did on the last podcast, which is "My Future Self Hates Me." And what we're trying to do with this podcast is give advisors some perspective and some tools about ideas associated with regret. Regrets that our clients might have about decisions that they made in the past. But what we're also thinking about is, can we project forward to some negative outcomes, some unpreferred outcomes that we want our clients to avoid? And maybe really imagine into those types of scenarios so that we can start exploring with our clients what amounts to be counterfactual framing. Meaning if you didn't save enough for retirement and future you ends up not being able to afford the healthcare that they want. How did he get there? What are the regrets that you might have?

How could that future unpreferred situation, how could that have even happened? And use that as some tools to break down calls to action. Maybe make our clients a little bit more receptive to recommendations that we have right now. But the core concept that we're going to be building on today, everybody, is this idea of anticipatory regret. Anticipating a regret that might happen down the road. So Suzanne, why don't you start off with just giving everybody like a definition of anticipatory regret in ways that financial advisors can think of this as a tool.

[00:02:14] Suzanne Schmitt: Yeah, absolutely. so anticipatory regret is what it sounds like. It happens when a person is having some negative feelings of regret, but they happen before that person actually makes a decision. It typically involves imagining some potentially negative outcomes or missed opportunities that result from a choice yet to be made.

And it usually involves us imagining a little bit, doing a little future scenario planning. But what's unique about it is we have that emotional response to the imagined outcome. And the last thing I think it's really interesting to note about anticipatory regret is, it's incredibly powerful. It can actually be used as a tool by advisors because it activates parts of our brains that are associated with both decision-making and the processing of emotions.

And so knowing that we're talking to advisors, getting behind or kind of getting underneath why your clients are making decisions and thinking about decisions can be an incredibly powerful way to unlock better conversations and get to know your clients. So one of the things that we want to throw out early on is this notion of, when you've got a client in front of you, asking them to reflect on times when they've made their best decisions.

So let's start with the best-case scenario first. You know, what were the conditions surrounding those decisions? Did they have adequate time to prepare? Did they have adequate time to do research? You know, did they do something as simple as laying out pros and cons

of each option, and did they consult somebody that they trust? A loved one, a friend, what have you.

[00:03:46] Tom West: Huh.

[00:03:46] Suzanne Schmitt: And then, you know, maybe asking them to contrast with, now think about a time where that didn't work out so well. So if the client can't really articulate what was good, usually they can articulate what was not so good. So getting them to do a little bit of a compare and contrast can be really helpful. I think that's a good jumping off point for the discussion. And Tom, I'm going to turn it back over to you to talk a little bit, I think, about some things that you've been reading and consuming that you think are really interesting for this conversation.

[00:04:13] Tom West: So everybody in prep for this, this regret-filled, it sounds weird, this regret filled podcast as a topic, not being regrettable. I took a look at this book. This is a recent book from Daniel Pink, The Power of Regret, and there's a lot of useful things in there. And the 2 ideas that I wanted to pull from that for this podcast is.

Certainly what, Daniel Pink was talking a lot about is the processing of a regret for things that have already happened. and how that is formative and can make you a better character and whatnot. I'm going to be trying to, with Suzanne, to use some of those concepts and projecting forward. One of the big regrets, the categories that Pink talks about is something called a foundational regret. And what a foundational regret is, everybody, as Pink describes it, it's the failure to plan ahead or to see something coming or gosh, I should have known, but I just didn't. Those are the kinds of regrets that we want to work with our clients from a language standpoint, just like Suzanne said, about decisions that didn't work well and that you should have seen coming, but you didn't. I think I always have some success as an advisor contrasting that with. What were, some decisions that worked out really well? And I always, by the way, for clients to give me some of the words or, let me repeat back to them, so you were responsible, you were accountable. You took your time.

You got feedback trusted sources, so on and so forth. When we start projecting forward about an unpreferred outcome, Suzanne, I'm speaking with you right now. Suzanne didn't save enough for retirement. Suzanne might not have access to adequate healthcare. Suzanne

[00:06:03] Tom West: might have some estrangement from a family member in some less preferred future. Suzanne, the idea would be what kinds of things would be regrettable at that point and what kinds of decisions Suzanne, could you have made along the way that you should have maybe seen coming? Being able to take Suzanne, my hypothetical client, into the future. And really visualize what that unpreferred outcome might look like. The setup everybody is, then you go back and you use those adjectives, those markers of what makes for a really good decision for your, for your clients. What would be, you be doing if you were responsible, if you were accountable, if you took your time, those sorts of pieces, and how can you avoid negative Suzanne. Future Suzanne? that's at least some of the places that I was jumping off from, but I know that I'm not the only one that was doing a little bit of reading on the power of regret and whatnot. Tell me a little bit about Bittersweet and how you were thinking about that framing.

[00:07:06] Suzanne Schmitt: Yeah, a recent fave book. I'm a huge Susan Cain fan. few of you may have read Quiet, which is about the power of introspection, but her latest is called Bittersweet and you know, bittersweet just for definition, anybody who's had a sort of a sweet, sour umami or literally bittersweet chocolate knows, it's the simultaneous experience of

kind of longing poignancy, sorrow. and not the chocolate part, but other experiences certainly. And at the same time, being aware of, of the sweetness and the passage of time. So Susan's basic premise in this book is I'm going to riff a little bit and say, Susan didn't say this, "I will embrace the suck."

So her premise is that when you kind of take in and take on board feelings of discontent of sorrow and longing, It can actually let you experience, more beauty, more joy, because you've got that frame of reference and you've internalized that frame of reference, you know, she also posits that, it is actually out of the, you know, the not so great experiences, the things that we wish we could do over that we become more creative.

So we actually can experience deeper states of love or happiness as the result of comparing and contrasting that state of longing or the, the act of being bittersweet. And, you know, the last takeaway for me specific to Bittersweet was really, you know, we internalize our negative emotions differently.

We actually remember them more acutely. And when we're in the state of being discontent with our current circumstances, our awareness is actually heightened and we can make better decisions. So, you know, part of the reason I think we had some fun with the title of this podcast. It comes back to this notion of we don't encourage ourselves or necessarily our clients to really internalize the stuff that didn't go so well.

And I love your suggestion about, you know, using the language and playing the language back to the client so that even in the moments where they are rationalizing a tough decision or working towards making a behavioral change in the now. It is always in service of helping them experience more of that love, that creativity, that ability to live with purpose.

but, but we've got to take the good with the bad. And I think that was, it was, that point resonated with me from her book.

[00:09:22] Tom West: Sure. I like the idea. And so for financial advisors that are listening, the one of the takeaways, how can we help our clients imagine an unpreferred outcome? Then imagine with them how we would embrace the suck of that hypothetical future scenario. I can share with you that I've had a lot of success in family conversations where, if we're projecting forward, particularly the idea of taking responsibility for get your affairs in order, making sure that you're communicating your priorities, where all your stuff is. the idea of people say a lot about, not wanting to be a burden on family somewhere down the road. Have your clients imagine them being a burden.

How exactly? What's the most likely circumstance that you would be a burden on your kids? Play that out. Somebody lives in California or I never really told my responsible kid where, you know, all the money is, or, none of the different advisors that I use talk to each other and know who any of them are. Like the idea of define exactly how you're going to be a burden. The idea is if you imagine that negative, it's sometimes easier to get people to find some wisdom around how I might have gotten there, and it might bring them back to the present about being a little bit more accepting, a little bit more motivated to get their act together. And this is where I think advisors, can really make a big difference in life outcomes for clients.

Remember what Suzanne said in the very beginning. When you're talking about loss, longing, regret, remember what parts of the brain are firing. It's decision making and it's emotions. We know that anytime decisions are made, you start with an emotional component first, then you go through an analytical sort of due diligence afterwards.

But most psychologists are going to be in a, find consensus around the idea that decisions are made emotionally first. If we can start figuring out a way to tap into stronger emotions around, this is the counterfactual part, around unpreferred outcomes, we might be able to move people through the decision-making process of being more supportive, of getting your act together, getting the portfolio right, being less of a burden, putting the legal documents together, and so on. So I think that's at least one of the first big takeaways that we wanted for everybody in the podcast. The second set of takeaways though involves the idea of choices, and, free and unencumbered choices. You know, Suzanne talked a little bit about

how people make the right decisions amid a handful of different choices. And what we're going to talk about now for a second is forced choices. So Suzanne, let's come back to some of the ideas that you talked about before. Generally speaking, what do we know about how people make the best decisions amid a handful of choices? And you're setting me up for, talk about forced choices, being something different.

[00:12:45] Suzanne Schmitt: Yeah. So generally speaking, people make their best decisions when they have time, when they have low stress, when they have high connectivity to the outcome, meaning it's an important decision. They're invested in the outcome. And lastly, when they don't feel that their agency has been taken away.

So said another way, they are the masters of their fate. They have adequate time to do a little bit of scenario planning and they are emotionally invested in the outcome. So those are best case scenario circumstances. If you would, where you're headed in terms of forced choices, when in essence, the inverse is true, when a choice must be made, generally, the circumstances are dire, or there's a sense of urgency to make that choice.

And lastly, it generally has a negative emotional connotation.

Specific to forced choice, you know, what's been your experience practically Tom and your practice when unfortunately a client literally has to make a choice.

[00:13:43] Tom West: Sure. And in my practice there's probably two or three things that I'm seeing with my aging client base. I think the first one, is, you're not able to stay at home anymore. It's not a safe environment. And, the forced choice is, bring somebody in, have some adaptive, supportive, technology lifts, contracting work done or moving out or moving in with a kid or moving into a community or something along those lines. So that's probably where I have quite a bit of space. If we have some time, I can talk a little bit about the forced choice of folks really having to share the baton with financial decision-making because of cognitive issues or those sorts of pieces. Let's talk a little bit about people not being able to stay in their home anymore.

And then all of the attendant things that happen along with it. This is a great example for our advisors because the decisions that involve money associated with a planned or an unplanned exit from a residence. All these financial decisions involve significant financial, considerations. It's not about the financial considerations. It's about other things. It's about, independence and family role and having agency and whatnot. What, when we're talking a little bit about a forced choice, everybody think about somebody that all of a sudden isn't able to get up and down the stairs or not mobile anymore. When we're thinking about forced choice, what Suzanne was talking about was, when confronted with a forced choice where every single option for somebody is unpreferred, every option stinks for lack of a better way to put it. If somebody makes the best of the unpreferred options, they're still going to resist it and they're still going to feel terrible about it. And, I want to introduce to this advisor audience is, when is

choice really presenting itself. Is it that end of the road where you can either go left or right, but but you can't keep going in that same direction? I would suggest that this, that families that we counsel in situations like this had choices open to them well before this point of no return where somebody's hand was forced.

The idea of, thinking about anticipating regret. Is there a circumstance where maybe you might be forced to leave your home at a time not of your choosing? Guess so of that anticipating into the future, like how would that happen? What would be the regrets that you would have that you know comes to pass? Then you can introduce guys the idea of we have this window where we have choices available to us right now to maybe make some other modifications in the house, have a plan B associated with, maybe get your name on a list for a community, maybe explore the idea of, different kinds of approaches to transportation just to be able to make people a little bit more enabled and independent. And then maybe talk a little bit again, counterfactually of what are the kinds of decisions that you would need to make, before that point of no return. That's the piece that I always like to talk about with forced choice. And maybe, Suzanne, you have some thoughts about ways to present the idea of, how can you bring back the conversation before a point of no return to make sure that our clients know that they have all the choices in front of them right now, even if it isn't apparent.

[00:17:34] Suzanne Schmitt: Yeah, so I, I want to just restate something that, you know, is important I heard you say, very specifically. A forced choice is almost always the result of incremental choices where the can got kicked down the road.

[00:17:49] Tom West: That's good, yeah.

[00:17:50] Suzanne Schmitt: So. In terms of, you know, what can be done basically to mitigate that happening. We really encourage and market advisors to say, "Hey, you know, think about major turning points, your birthday.

It could be New Year's Day. It could be your six-month, you know, half-birthday anniversary, but sit down, you know, at a date that happens regularly." And think a little bit about big life changes that are coming. That could be getting ready for retirement. It could be helping to send a kid to college. It could be buying a home.

And, you know, to your point, it could be talking about, you know, I really want to stay in the house, but what needs to happen to make that happen on my own terms. And we encourage advisors to have their clients take stock of those major decisions that are coming. And then start to sketch out, if my goal is to stay in my home, what are some baby steps that I can take right now, even it's as simple as researching contractors in your area who might be able to do home modifications, but the magic is in chunking up those big decisions, doing it on a day that has generally a positive association happens every year, so it's a recurring thing, if you would, that you encourage your clients to do.

And arguably, most importantly, it gives the client the magic of time to make their best decision in the best set of circumstances. So again, if you've got researchers, they can research, they can lay out their scenarios, they can talk to their, their trusted loved ones. But you're giving your clients regular touchstones to avoid ending up in that situation where multiple cans have gotten kicked down the road. And now all of a sudden their, their options might come down to two. It's binary, neither one of which is good. And not for nothing, there's a tendency to shoot the messenger in those circumstances. So if you're the advisor, who is now sitting with your client who is contemplating two options, neither of which are so great.

There can be a tendency to associate that with you. And obviously that is not your intent. That is not what we want. So a little bit of tough love upstream can go a long way towards minimizing the downstream effects of forced choices.

[00:19:52] Tom West: Yeah, and practically speaking, one thing that we talked a little bit about was maybe calendaring some of these conversations. were thinking about, is there something that happens in our clients lives annually that they reflect on different, places that they've gone things that they've done, the stop and smell the roses days.

And of course, that's birthdays. And one of the areas that I like thinking about in my practice is the six-month birthday, the halfway point in a year, to be bringing up some of this anticipatory regret. The idea of maybe at the six-month mark, let's talk about all the stuff that could go wrong. And. I've successfully done this once or twice. I'm glad you mentioned the kick the can. I illustrated for a client two years ago, the implications of kicking the can. And I did this counterfactual thinking and I couldn't get this lady to do the things that she needed to do. Most particularly, she was supporting her adult children beyond what she'd be able to afford. And I kept on telling her like, "Listen, the implications, if the screw turns and, your kids have become financially dependent on you at a point where you need your money to be doing stuff for you, there's going to be a whole lot of dislocation around it. You're going to feel bad.

They're going to feel bad. Decision makings are going to be all gummed up." And the reality was, is she would tell me every time, "I hear where you're coming from, but I just can't cut my kids off right now." And kids were kind of bums. I mean, they, they really, took advantage of mom along the way. But the thing that I told her about sort of her name is Anne, the thing that I told her about future Anne that might be in a pinch, that might have some forced choices. I did tell her, "Listen, I'm going to be there for future Anne helping her out. But, even though, you know, we're coaching you along the way to maybe figure out how to reign in some of this gifting, even if we end up with unpreferred, regrettable future Anne, I'm still going to be there and help you out like we will have had a history." And, you know, exactly that happened. She ended up hitting an inflection point where we had to have a sit-down with the kids. and she was extremely grateful of my coaching along the way that she didn't take. It was one of the languages that she used in that tough family conversation about, "Listen, Tom's been telling me that this was going to happen all along. And here it is," and she was apologetic to her kids about not taking more agency to avoid the situation they were in and her posture about not taking it out on me, but taking more responsibility in that moment, in a really weird way, brought the family together at a moment of crisis. And I'm glad you talked a little bit about, if somebody is at a forced choice and everybody is hostile to the messenger, make sure you tell your client when you're thinking an unpreferred future outcome, that you're still going to be there.

You're still going to help out. You still care. Those sorts of pieces. That can do a lot, that can do a lot to make sure people feel supported, even as you're trying to goose them into having a little bit more agency and a little bit more control on things. But everybody, takeaways from this one is, let's think about how do you set up regular conversations with your clients about imagining not just preferred outcomes, but unpreferred outcomes. And let's think a little bit about how we imagine with our clients. How did they get there to this unpreferred hypothetical place? Explore the idea of loss, explore the idea of longing now and in the future that might be able to have some breakthroughs in terms of the ways that you're able to support your clients. And I'll give it back to Suzanne for some, wrap-up thoughts. As, as you're sort of closing down this conversation with me. What are some of the big takeaways that you want to make sure are highlighted before we sign off?

[00:24:07] Suzanne Schmitt: Yeah, I want to go back to two points from that story you just shared. One is you took the time to build the relationship equity with that client so that she knew you had her best interests at heart, so much so that you were going to tell her things that she didn't necessarily want to hear or act on, but you had enough trust in the relationship to do that.

The second point I want to double down on is, we focus mostly on the individual's anticipatory regrets, but there is an opportunity as you're working with clients to ask them to think about, and I'm going to go back to your client example, Tom. So how would that client have articulated, you know, her future kids for whom she's done a lot, hasn't given them the tough love, maybe never really encouraged them to stand on her on their own two feet.

And now she's out of the picture. And those kids have not necessarily built the skills to live the kinds of lives that she ultimately wanted for

[00:24:59] Tom West: Right.

[00:24:59] Suzanne Schmitt: them. So specifically, you know, it works for the individual. It works for the family. And, you know, lastly, I just want to reemphasize scheduling time to reflect on those major decisions that are coming, checking in with clients on what has and has not worked. Kind of where are they with their, their personal development plans, if you would, on a regular basis is a really powerful tool that I think we all intuitively know, but we don't always take the time to do individually or in our practices.

So, I think that's a really important tip to start to see these conversations before the forced choice presents itself.

[00:25:33] Tom West: No, that's great. My wrap-up with Turn That Frown Upside Down everybody. I like Suzanne talking about embrace the suck with your clients. Embrace the suck about loss and longing that they've experienced up until now. But think about projecting forward. What would be a regrettable outcome? How did they get there? And then use the insights, the language, the way that people see themselves as a mechanism counterfactually to maybe build better behavior, better habits, and ultimately better outcomes for your clients. So with that, everybody, thanks for joining us. Good to see you on Advisorpedia. Subscribe to this podcast, and we look forward to talking to you soon.

Bye bye.

[00:26:19] Tom West: Thank you for listening to The Family Financial Conversation podcast. Click the subscribe button below to be notified when new episodes become available. The information covered in the podcast represents the views and opinions of the guests and do not necessarily represent the views or opinions of Signature Estate and Investment Advisors.

Disclosure: Signature Estate and Investment Advisors, LLC is an SEC Registered Investment Advisor. However, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Signature Estate Securities, LLC. Member FINRA, SIPC. Investment advisory services offered through SEIA LLC.

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