Updated on: September 15, 2022

The CFP Board is adding a new category called “Psychology of Financial Planning” to the list of topics on which CFP® certification applicants are tested. It’s a change that has been in the works for some time.

I often hear newer financial professionals who know they should broach financial psychology topics with their clients say, “But I’m not trained as a psychologist!” Then on the other hand, I hear veterans in the industry acknowledge that they often find themselves providing financial therapy—that after years in the role they realize, “Yeah, I kind of am a psychologist!”

Uncovering the Money Story

If your approach to getting to know a client has always been from a traditional financial planning perspective—gathering data to figure out risk tolerance, how to construct the appropriate portfolio, what’s missing in terms of insurance or estate planning—it’s time to start talking to your clients in a different way. Financial psychology expands our mindset to look at our clients more holistically.

There are many sources to find the questions that will take you beyond a transactional mindset, including my own Klontz Money Script Inventory, but here are some basics to think about. Remember you are trying to gather information centered on your client’s values around money, their fears around money. Where are they currently? Where did they come from? What was it like growing up around money? How did they feel about their socio-economic status? What three things did they learn about money from their mother? From their father? What’s their earliest money memory? Their most painful? Their most joyful? These experiences lead directly to beliefs around money and those beliefs help predict income, net worth, and financial behaviors.

I also advise financial professionals to learn their own money story. Ask yourself these same questions. By subjecting yourself to the same introspection you expect from your clients, you’ll develop your ability to empathize with them, hone your understanding that we all have biases, and confirm that everyone’s money story is unique to them. If you are truly committed to understanding how money stories work for your clients, you need to walk through your own history with money.

Don’t Fear Those Difficult Conversations

Advisors may still be reluctant to approach a client conversation that is rooted in psychology. I like to compare the psychology conversation to an iceberg. The top part that you can see above the water is the smaller part. That might be the part where you are having a direct conversation about a client’s psychology and what it was like for them growing up. These conversations will help you become a better communicator to help facilitate change for your clients.

But just like an iceberg, remember that so much of what is happening with financial psychology is represented by the part that is below the surface of the water. Your clients might have no idea that you are doing anything “psychological.” What they are experiencing is that you are a profound listener. You are giving them an opportunity to discover themselves. When they are coming to you with concerns, you aren’t brushing them off because they are anxious. You are creating a safe space where they can share those concerns.

And as you listen, you reflect their story back to them. The bottom line is these clients are never going to leave you because they aren’t used to someone listening to them in this skilled way. There is something powerful about somebody saying something out loud and having it reflected back to them. As this happens, they are hearing themselves and will already start to self-correct. This is one of the great things about counseling and therapy—that opportunity to self-correct.

Addressing Inevitable Conflict

Let’s face it, many of your planning clients come to you as a couple. What happens when you’ve started to dig into each of their money stories and conflict is uncovered?

Keep in mind that these money story discovery conversations may bring up feelings for this couple that they have never addressed before. You may find that they differ when it comes to the questions they should have asked each other back when they first got together like, “What are your financial goals? How do you manage money? What are your ideals?”

Regardless, couples want to build something together—move them forward by helping them discover what that is. When I have a conversation with a client whose partner is sitting there, they often start to understand their own goals. Instead of each partner thinking they are right and the other is wrong, help them take a step back and understand where the other partner is coming from.

For example, show how one partner’s propensity to overspend on occasion comes from their experience with poverty, and the anxiety they start to get when they feel like they can’t order a soda with dinner makes them feel like they are back in poverty. When the other partner realizes the depth of that emotion and that concern, they start to modify their opinion about the conflict. That’s emotional and powerful! And it can lead to some real breakthroughs on how that couple can modify their money script to achieve something together.

As couples, we are often drawn to someone who thinks differently than us—including their approach to money. Financial psychology gives us the opportunity to help people understand their own—and their partner’s—approach to money, making negotiating changes, moving forward, and setting financial goals a lot easier.

Psychology and Financial Planning Are Inseparable

Your job as a financial professional is to work with clients to help them achieve their goals—whatever they may be.

Introducing financial psychology to the way you work with clients will expand your mindset to look at this client, this human being, in a more holistic way. Perhaps they’re a mother, a father, a grandparent—they’re in a relationship with someone else and they might not agree about everything related to money.

Money’s a taboo topic. Clients may be ashamed of their money situation, and they may not have anyone to talk to about it. You as a financial professional are in an incredible healing role because people are talking to you about what they are struggling with the most. There’s so much you can take from financial psychology and clients won’t necessarily think you are doing anything differently. All they know is you’re doing an incredible job for them, and they want to recommend you to all of their family and friends.

To learn more about the psychology of money, read our eBook Tapping into the Emotional Side of Financial Planning.

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