Patrick Chitwood, PhD, CPA

Continuing Education Information

All but a few Americans have been negatively impacted by the worst recession since 1929. Overlooked casualties include those professionals who are often seen as responsible for the painful event. The financial services industry had approximately nine million employees at the end of 2007. Many of those are financial professionals (FP). The group includes trust officers, financial planners, investment bankers, investment advisors, securities brokers, mortgage lenders, and middle and upper level management of these front line staff. Many have been subject to the angst of a population that has seen dreams shattered in a remarkably short period.

Because of the close association with the capital markets and thus the recession, the effects of the recession have resulted in psychological issues unique to FPs. A sense of guilt, disillusionment, and fear has left many in psychological turmoil. For some of them the task of rebuilding their lives, businesses, confidence and psychological health may be far too great a task to manage alone. The role that psychologists can play in this arena is significant, but requires insight into the daily problem solving that makes FPs unique patients. Usual therapeutic intervention may be less successful without an understanding of the issues they face every day.

The purpose of this paper is to provide an understanding of some of those issues, why they are so difficult to manage, and to suggest a framework for addressing patient complaints. By no means is it meant to recommend therapeutic treatment programs. Rather, it is meant to provide background and understanding of the functioning FP and the unique recession trauma they have endured.

The Psychological Recession 

Not only is the recession a financial reality, it is a psychological reality as well. In many ways it is the underlying psychological damage to victims of the recession that makes the recession itself so destructive and long term. Judith Bardwick stated:

“The psychological downturn, especially when combined with the current economic recession, is far worse than the 2001 economic slowdown, and its cause is not explained by outside factors like media bias or bickering between impotent “leaders.” This sense of pessimism is rooted in the profound and sustained feelings of vulnerability that many people are experiencing. Anxiety, depression, and a sense of being powerless are a poisonous mix. The tragedy is that focusing on fears only reinforces them. In understandable but irrational ways, people who are frightened move ever forward toward panic. In this way, a psychological recession is self-fulfilling.

The media barrage of bad news doesn’t help. The same “echo effect” that contributed to the boom of the 1990s is now having the reverse impact by reinforcing today’s gloomy scenario. Somehow, all television stations end up playing the same video of the same plant that was closed, the same workers who were laid off, the same children whose school was closed, and the same contract to outsource work to India or China . . . and the loop of information plays endlessly. When the same message is trumpeted, debated, illustrated, and referred to by “experts,” the convergence of the cacophony of its echoes makes it “a fact.” That something might be just a possibility or inference or idea or opinion is transformed through obsessive, pervasive repetition into a certainty” (Conference Board Inc., 2009).

The personal experience of recession also has been described by Dai Williams (Psychological effects of the UK Recession, 1990-94):

  • A growing sense of frustration, uncertainty, disappointment, and ineffectiveness, often described as a sense of losing control.
  • Increasing tiredness, confusion, and malaise, feeling punchdrunk with too many problems to solve.
  • A feeling of personal isolation from family and friends at home and work.
  • A sense of inadequacy in family life due to lack of time/money to maintain former lifestyles.
  • A personal dilemma between the temptation to quit or give in to despair, and the courage or “bottle” it takes to hang on and keep trying.

These intense feelings throughout the country have been felt by many Americans. All of the psychological symptoms of recession are present in financial service professionals in a magnified manner. Their plight, while in many ways the same as any other individual, is worsened by the very profession that provides them an income, and the one often seen as responsible for the economic calamity that appears to have begun in early 2008. Issues unique to this group need to be understood in order to provide effective and successful psychological treatment regimens.

Some Theoretical Constructs of Finance 

In many essential ways the FPs world has been shaken emotionally and professionally. The very foundation underlying most investment decisions evolves from previously trusted and well established economic theories regarding reward and risk. The crash of 2008 shook belief in the basic framework underlying investment risk. In the aftermath FPs are on shaky ground, afraid to move forward.

To understand the depth of this foundational shift, we need to review a short history of investment theory. While the next few paragraphs are perhaps a bit arcane, they serve to provide the backdrop of how secure the financial services industry felt in its beliefs.

Individuals who are even mildly interested in investments might be surprised to learn that until 1953 with the publication of Harry Markowitz’s dissertation, (Markowitz, 1953), not much thought had been given to the risk side of investing. His publication and subsequent Nobel Prize in economics called attention to the concept of risk management. Today, his highly acclaimed research serves as the framework for the Prudent Investor Rule, as well as for the investment strategies of institutional investors around the world. It is estimated that some $7 trillion dollars in institutional assets are invested in accordance with Markowitz’s Nobel-Prize winning discoveries. This paper formulated the basis for allocation of assets to different asset classes, such as stocks, bonds, and cash. It has come to be known as Modern Portfolio Theory (MPT). Until 2008 it went unquestioned and was pervasively accepted as the gold standard of risk reward analysis.
Subsequent work by other Nobel Laureates (William Sharpe in 1962, Burton Malkiel in 1973, and Eugene Fama in 1976) furthered the analysis of risk management. I mention this to underscore the weight of validity given to these theories. To question them was simply not done…at least not until 2008.This relatively new theory has been accepted by every financial institution around the world. From the failed Lehman Brothers to the nearly bankrupt Merrill Lynch and Citigroup, they all subscribed to the tenets of MPT.

At the root of MPT lay reliance on one critical statistical measure, the standard deviation (SD). The SD was used as the measure which defined risk. From this rather obscure beginning the SD became the adorned queen of risk measures. Financial newsletters and research publications such as Value Line and Morningstar used the SD as the measure of risk of an investment or a portfolio. It provided a method of illustrating to an investor, investment bankers, or global institutional investors the probability of a given investment return over a given period. The software development for these illustrations resulted in entire industries springing up to provide a dizzying array of glossy sales presentations. Financial professionals had in their hands a tool which allowed them to state an exact probability of a particular return over time. This metric could be applied to stocks, bonds, and mortgage-backed derivatives such as the adjustable rates that began the market collapse in March 2008. Armed with such powerful tools created by Nobel Laureates, FPs and even Federal Reserve Chairman Alan Greenspan marched headlong into an economic uncoupling partially resulting from reliance on unsubstantiated statistical methodology.

The idea that losses could not only be three fold worse than expected, but that they could happen in a matter of twelve weeks was simply unthinkable and deemed improbable if one relied on the tools of MPT to estimate the inherent risks. Within a few weeks of the 2008 stock market crash, articles in financial trade publications began to surface indicating that MPT and the buy and hold strategies were a thing of the past. The equivalent for practicing psychotherapists would be the sudden pronouncement that behavior is always independent of reward and punishment.
The ground had been pulled from under the feet of every FP in a matter of eight weeks. The confidence in corporate research departments, government, leaders, regulatory agencies, and expensive investment management firms was all but destroyed. The feeling in the industry was that each person was standing alone. Professionals no longer trusted what they were told, nor what they read, and what they had believed in for decades. The typical professional’s strategy was to do nothing and hope that things would get better. To add further insult, the stock market did the impossible in March, 2009, dropping another 20 percent. With their tools having failed so miserably, FPs found themselves in the position of daily confrontation and destabilization.

Professional Pressures 

Clients who were sometimes long-term friends became people to avoid due to either their anger or the professional’s anxiety about his/her own perceived guilt. To make matters worse, the FP had little or nothing to say about what to do in the future. The world appeared to be headed toward catastrophe in December, 2008 through March, 2009, and there was no escape from hearing about it. Every news source, every holiday party, every encounter had as a central or at least important ancillary theme, “the crash of 2008.” And all of these encounters had at the center the FPs and their ideas of what had happened and what should be done. The sense of having been perhaps on the cutting edge of financial understanding had been replaced by feeling betrayed, foolish, and guilty. Many professionals began to see their clients desert them and become critical or distant at best. Many had the added pressure of litigation.

Financial professionals who survived faced the understandable but impossible questions such as: “Do you think it will get worse?” “Should we try to sell our house?” “Do you think that we will still be able to afford out of state tuition?” “How long will my retirement funds last?” “Do you think the markets will come back next year?”

As the markets worsened in the early months of 2009 some clients wanted answers to the same questions again. All of this with a backdrop of distrust in theories, corporate officers, regional and local management, and an increasing sense that even the federal government did not know what to do.

Unlike other professionals they could not hide from the damage done to their own financial well being. It was in front of them every day, not unlike an oncologist with cancer. There was no respite from their financial plight. They frequently found themselves in the position of recommending strategies to clients that they were unable to employ themselves because of regulation by government and self policing agencies.

An FP working in the typical national brokerage firm is subject to yet another pressure. Because their income in most cases is related to commission production as opposed to salary, they typically have production criteria which necessitate that they produce a certain level of commission income in order to maintain their income level, or in some cases, their job. This added pressure puts them in a psychologically untenable position if they feel that a transaction is inappropriate for a client. On the one hand they must produce income to maintain their own personal income level, while at the same time feeling that what they are doing is not in the client’s best interest. The sense of guilt can be overwhelming. Some voluntarily choose to leave the industry rather than trying to cope with dual allegiance.

Finally, and not the least importantly, is the frequent feeling of guilt that comes with believing that they are responsible for their client’s financial plight. Even though there is a superficial understanding that markets may shift dramatically, when it does happen the conscientious FP feels responsible for not having had sufficient foresight to protect clients. When retirement and college plans are damaged because of recommended investments not performing as expected, the FP reviews motivations, conversations, and sales presentations. Frequently they find themselves feeling that investments were recommended solely for their own personal gain, and consequently feel ashamed.

With the confusion of markets and chaos of the industry many institutions have been sold, bankrupt, or absorbed several times over. The fallout from the market’s collapse was so sudden as to leave institutions uncertain of their domestic and foreign holdings. They found themselves unable to accurately assess their balance sheets and correctly state earnings in an ever-changing environment of governmental regulation and accounting changes. This provided a basis of distrust of the employer and the industry as a whole. The FP was placed in the position of needing to appear confident, and forceful in their guidance while not being certain of who their employer may be from one day to the next. In many cases they found themselves defending changing corporate structures with little time to console their clients, address their own financial concerns or learn about their new employer.

Victims of this chaos were FPs employed to provide the very services that created profits for their companies. They frequently found themselves the object of cost-cutting measures designed to enhance earnings representations to shareholders. Consequently FPs felt in many cases they were being sacrificed for the sake of management bonuses, and in some cases that was true.

Domestic Pressures

In addition to the office pressures, FPs had the same problems as their clients and everyone else. Their retirement plans have been devastated. Many of these plans were invested in their company’s stock, such as Merrill Lynch, or Citgroup. Personal investment accounts (which are typically more aggressive than their clients’ accounts) have significant loss. College funds have been damaged. Home equity has been reduced as has their income by as much as 40%. Not only are professionals not immune to the pain of a recession, but generally they have suffered first, most, and longest in a recession because of close career ties to news and data.

The usual support sources were no longer there. During most typical market downturns the FP could rely on spouse or friends to be understanding. However, the 2008 market crash created fear and skepticism that was unsurpassed for this generation. Spouses who did not work or became unemployed could not contribute financially. Domestic finances were stretched well beyond normal and conversations about the family budget centered on cutting back. This added to the pressure FPs felt that they not only had failed their clientele but family as well.

Current State of the Financial Professional

Stunned and trying to sort out what took place in just a few months FPs find themselves as follows:

  1. Deeply concerned that they may lose their job or at the very least have their income greatly decreased.
  2. Feeling all of the domestic pressures that the rest of the employed population feels, i.e., decreased home-equity, lost retirement and college assets, daily expense pressures, and family members expressing fears and concerns for the future.
  3. Feelings of guilt for having created catastrophic results for their clientele.
  4. A sense of foreboding doom that there is no fix for economic ills.
  5. Losing a sense of security in the theoretical constructs underlying their profession.
  6. Weariness that whatever they do going forward has no predictive validity and is pure guesswork.
  7. Feeling abandoned by their employers who provide little support for their concerns.
  8. For many, feelings that they have been pawns in a monstrous scam and that they are not professionals at all.
  9. A loss of pride and identity.
  10. For most FPs their only strategy has been to drift with the economic currents and tell their clients to hold on. This further engenders a sense of worthlessness in that there are not identifiable behaviors tied to accomplishing personal or client goals.

An individual who is successful in the financial services industry must demonstrate significant skills in coping with rejection and mistakes. It is an exacting and demanding profession both in terms of mental acuity, communication skills, business acumen, and emotional resiliency. It is estimated that of those who begin a financial services career only 30% last two years and about 18% remain for five years. At the 30 year mark a paltry 4% of the original exist. The ego strength required to remain in the profession long enough to develop a solid client base is not easily attained. Thus, when that ego strength is damaged as a result of a catastrophic change such as 2008, doubt frequently becomes a constant companion. It is this factor that weighs heaviest and is the most significant psychological risk to the financial professional for it portends the erosion of their greatest asset…confidence in their abilities.

These professionals are feeling their clients’ pain more today than in past bear markets because so many baby boomers are now at or near retirement. Never have FPs had to deal with such a large number of retired clients. Most of them are reliant on their retirement savings managed by FPs. It is hard for the advisor to tell clients to go back to work, or even cut their spending.
Although guilt may not be displayed on a daily basis, all of the habits that are essential to the work of an FP such as client contact, recommendations, portfolio reviews, financial transactions, and networking for new business become extremely difficult to carry out due to inhibition from feelings of guilt. They may find that there are numerous paperwork projects that must be done in an attempt to escape the strain. Their days become progressively more inefficient and client contact and confidence may wane. The buildup of undone tasks, phone calls, and overall business planning rapidly becomes a seemingly insurmountable task.

Matt Oechsli, President of the Oechsli Institute Inc. in Greensboro, N.C., surveyed 733 advisers, and late last year surveyed 750 affluent investors as the market was falling. He found that about 80% of affluent investors - those with more than $500,000 in investible assets - are “disgusted with their adviser because their adviser is spooked.” Additionally, only about 20% of the advisors surveyed had reached out more than usual to their clients. Only 3.2% of advisers brought in 10 or more accounts worth between $250,000 and $500,000 over the previous 12 months, according to data from the Oechsli Institute. That’s down from 7.7% in October and 26% in the first quarter of 2007, respectively. Mr. Oechsli said “Advisers are paralyzed.”

Kenneth Gutwillig, a financial advisor in New York, has formed a group just to deal with the depression and guilt that financial advisors alone feel. He stated in a recent trade publication: “They feel like they are drifting. Some doubt every precept they‘ve relied on.”

Compassion Fatigue

It may be a relatively rare occasion when a FP actually seeks treatment for the stress and trauma of the effects of the recession. More likely the presenting complaints will be the depression, marital strife, substance abuse or anger of other recession fatigued Americans. All of these symptoms are the same as for any other victim of recession stress. The critical point for the psychologist to recognize is that traditional approaches alone may not be as effective for these patients as it would be for others with similar presenting complaints. The FP is unable to avoid the constant contact with the state of the economy. There is daily confrontation with the facts of the recession. Therefore, unlike others the FP cannot take a knowledge vacation or eliminate contact with financial media. Very few other professions provide the opportunity to feel guilty about the financial fortunes of others.

In the medical profession, the term compassion fatigue applies to a physician who gets emotionally involved for too long. Its symptoms can include apathy, a feeling of isolation, and emotional outbursts, as well as headaches, insomnia, depression, and/or anger. Healthcare providers are trained to maintain a disengaged professionalism. Unfortunately, there is no training or support in professional detachment for financial advisors. Many feel a high degree of attachment to the well-being of their clients. Yet when clients are emotional, FPs need more than ever to be objective and professional. It’s an emotional rollercoaster that can lead into their own brand of compassion fatigue, and inhibit their ability to help clients when they need it most.

Treatment Suggestions

Guilt Relief:
A therapeutic priority should include a component to relieve the sense of guilt and responsibility that goes well beyond what is realistic. At the beginning of treatment it is important to create an emotional awareness of the boundaries of responsibility. For advice that was given in the spirit of looking after the client’s best interest, the FP must first absolve him/herself of guilt, recognizing that the economic calamity was not his/her responsibility nor could he/she have anticipated it.
There should be significant discussion about those areas in which the professional does not feel that their advice was given in the client’s best interest. In most cases these are exaggerated and unrealistic feelings. However, it is possible that there was self interest as a major factor, and if so, this should be uncovered and explored. Without resolving the issues of guilt, the FP may make little therapeutic progress.

Compartmentalizing Daily Tasks:
The daily tasks of an FP are many and varied and, if delayed for even a few days, become overwhelming. And, because of the dynamic nature of the business, the decisions for how to handle the tasks may change and lead the FP to distrust his/her abilities. Consequently, it is important that they be encouraged to take on tasks as they occur and not leave the office until a reasonable stopping point is reached. Stressing the importance of proactive behavior is important: reactive and passive behavior in their profession can lead to mistakes, confusion and further loss of confidence.

Increasing Client Contact:
In many cases the anger of clients is the result of lack of contact. The client is frightened and a lack of contact with the professional increases fear and the likelihood of angry interaction. Increased personal contact will frequently lead to a realization that much of the anticipated anger was a fantasy. The contact creates an opportunity for the client to see the pain and concern that the advisor is feeling and allows for a more realistic approach to the problem solving. The contacts need to be more structured than usual in that there should be very clear answers to anticipated questions. The professional should have an opinion that he can readily articulate. Some clients will get angry and may even leave to look for another advisor. It should be stressed that a client may choose to leave for a variety of reasons, many of which have nothing to do with the FP.

Support from Colleagues:
Many of the professionals in the financial services industry see themselves as strong problem solvers. Many times they are reluctant to discuss their fears and problems at home for fear of appearing weak and frightening family members. However, frequent outlets for fear and anxiety are necessary to cope with the extraordinary level of stress in this recession.

FPs can find few people who can understand them as well as their peers. However, it is important that the conversations be structured around expressing feelings and discussing coping strategies. Complaining, blaming, and finding fault with the companies they work for will only exaggerate the problems and short circuit any potential growth. In constructive meetings the professionals find that they are not alone and their feelings are shared by others. They may find that they are in a position to be helpful to a colleague who is less fortunate. This provides a sense of confidence from leadership that can be helpful.

I believe that it is very important to address the career and professional issues of FPs in conjunction with a course of therapy for presenting complaints. The problems that are unique to this group can be compared in many ways to post traumatic stress disorder. Without first dealing with the emotions and behaviors deeply underlying this disorder, treatment programs addressing marital strife, drug and alcohol abuse, rage, and depression may be of limited long term value.

What May Lie Ahead

The slide in stock prices began in earnest in September, 2008. However, by that time the markets had already declined about 19% from the previous year. The crash of 2008 fell on already wearied shoulders. Though 2009 has provided some relief (as of this writing the markets are up approximately 12% for 2009), the specter of more pain is on the horizon. Economic data has only suggested recovery. Many professionals and economists alike are skeptical. The dire prospect of a repeat of the 1929-1934 economic conditions continues as a possibility. This horrific possibility lies in the consciousness of every FP. It brings with it a sense of impending doom.

Functioning in an industry which requires meticulous attention to detail, an exacting focus on mathematical data, exceptional communication skills, and an unusual amount of resiliency to personal rejection is difficult in the best of times. Two years of abnormally difficult times, with the potential for even worse pressure, produces a group of individuals who are prime candidates for extended psychotherapy. It is likely that many will not survive the continuing pressure and the lack of predictability. As such they may find that they are entertaining fantasies of escape. These may manifest simply as career changes, return to school for younger professionals, or slowing down and living on less for those who are older and have the capability to maintain a reduced form of their current lifestyle. For these people, supportive counseling with referrals to the appropriate resources along with therapy designed to provide tools for coping with loss might be appropriate.


Patrick Chitwood, PhD, CPA/PFS is a registered investment advisor in Birmingham, Alabama. He is President of Chitwood Lindberg Wealth Management, Inc. He has over 30 years experience in the securities and investment industry. Dr. Chitwood begins his term as a public representative on the National Register Board of Directors on 1/1/2010.


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