Optus’ biggest failure was not the national outage that occurred earlier this month on 8 November or the 2022 cyber-attack when hackers stole the personal data of more than 2 million customers.

Although customers were rightfully angry, people generally understand that cyber-crime is increasingly prevalent, sophisticated and aggressive, making it impossible for companies to guarantee security. Consumers can even forgive a major technology glitch but what they can’t accept is businesses failing to adequately plan and prepare for such scenarios, given their inevitability in today’s digital age.

Planning for an uncertain future, including a potential crisis, is what financial advisers assist their clients do.

The entire life insurance industry is built on crisis mitigation. Accidents, illness and premature death are all, sadly, part of life.

Similarly, a financial crisis is for financial advisers what a network outage is for a telco, yet how many advisory firms have a financial crisis management plan?

Given the ever-present risk of a major market meltdown in the current economic and geopolitical environment, there is no excuse for being ill-prepared.

As discussed in my last column, crises can be categorised as macro (recession, war, natural disasters) or micro (job loss, divorce, sickness, the death of a loved one).

This article focuses on macro events, namely a financial crisis. It examines common human emotions and behaviours during a crisis and how they impact decision-making. It also explores the important role financial advisers can play during a crisis and how, by preparing ahead of time, they can pre-empt client actions and reactions, and identify potential solutions.

Emotions are not just feelings

Emotions can significantly influence financial decision-making.

For example, fear and anxiety can lead to hasty decisions, such as panic selling, that can exacerbate a situation.

On the flip side, fear can also result in inaction because people don’t know what to do.

In the same way someone in physical danger can be paralysed by fear, there is a tendency for people to do nothing and bury their head in the sand during a crisis.

A crisis can also conjure up feelings of regret. While a market downturn is beyond anyone’s control, it can lead to significant personal financial loss, which can spark feelings of self-loathing and regret.