The art of asking: How the right questions, worded precisely, can help older clients

Loss aversion, one of the major behavioral finance biases, is often defined as the pain of losing an amount of money exceeding the pleasure of gaining that same amount of money. It also refers to the reluctance of investors, and individuals in general, to realize losses, both financial and nonfinancial. 

Most advisors are well aware of the loss aversion bias, but they may not fully appreciate its heightened impact on their older clients. For these clients, the risk of losing financial security is compounded by the stark realization they are losing their health, their independence and their friends and relatives — losses that are figuratively and, in some cases literally, heartbreaking. This can explain why the retirees are a target market for annuities, long-term care insurance, reverse mortgages and assisted living communities. Unfortunately, they are also the target of scammers who appeal to seniors' fear of loss and need for security. 

Advisors must also realize that from an older client's perspective, loss aversion is a powerful force affecting how they choose to live their remaining years. Four fears define this force: fear of losing financial security; fear of losing health, both physical and cognitive; fear of losing independence; and fear of losing-cherished relationships. Because of seniors' rational fear of balancing financial needs with hoped-for longevity, financial advisors must carefully adapt their communication style when advising them — an adaptation reflected in both what advisors say and how they say it.  

Client communication strategies vary from advisor to advisor, but one technique is common to all: asking questions and probing the answers.

Given the unique fears of older clients, questions posed to them should be framed more carefully than comparable questions posed to a younger demographic. Financial advisors should frame their questions to these clients by combining a loss-aversion perspective with compassion and empathy in a way that delivers the implicit message that they and their fears are understood. As a bonus, compassionate questioning is a competence that differentiates human advisors from robo-advisors.

Gain mode vs. loss mode
Advisors should also take into account the concept of "longevity literacy," which describes a client's knowledge of their estimated life expectancy and the implications of that knowledge — or lack of it. Only about 37% of  U.S. adults possess such knowledge, according to a study from the TIAA Institute; the majority of adults are effectively "longevity illiterate," meaning they are less able to prepare for retirement.

READ MORE: The death question: How to talk to clients about their life expectancy 

For advisors who recognize these constraints, questions must be carefully framed in order to establish rapport with the client and create a successful financial plan. Loss aversion can manifest in response to how questions are framed: Loss-averse clients respond differently to questions posed in a "gain mode" versus a "loss mode."

This differential response pattern can have unique consequences on creating an older client's financial plan. Say a client is 70 years old and has a statistical probability of living until 88. The advisor could frame a discussion about an investment — fixed-income securities (little or no risk) versus stocks (more risk), for example — by saying, "You will likely live for more than 17 years." Or, she could pose the same question and add, "You will likely die in less than 19 years." 

Although the question is the same, framing it in gain mode (that is, a "live to" construction) as opposed to loss mode (a "die by" format) may elicit different responses, depending on the degree of the client's loss aversion. An older client may make different decisions concerning investments, annuities, insurance, etc., depending on how the financial planner frames the queries. 

Questioning is the foundation in all financial planning. Advisors must increase their awareness of the consequences of their questions when working with their elderly clients. If you can discern a loss or gain mode in the way you have posed a question, consider asking it again, this time rephrasing it in the other mode. Doing so will allow you to assess the consistency of your client's responses.

In all cases, ask your questions empathically and compassionately. When clients have a heightened fear of losses, asking the right question in the right way is indeed an art and will validate your true value as an advisor.