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Psychology for Planners: How to Engage with Clients’ Financial Behavior

Dr. Joy Lere June 7, 2021

financial planning psychology meeting

Money is deeply personal—our financial behavior is intimately linked with the perceptions, ideas, attitudes and beliefs we’ve formed around money throughout our lives. As a clinical psychologist and behavioral finance consultant, I am excited to see the financial planning industry starting to recognize that in order to understand financial behavior we must give credence to the role of an individual’s psychology.

Improving a client’s well-being requires more than providing a financial plan. Your alpha is not in your spreadsheet. Today’s advisor must be adept at understanding what drives human behavior and appreciate what motivates people to commit to a path that leads to long term success.

There are a few ways I recommend financial planners create an open, supportive environment where clients can feel comfortable having the kind of challenging financial conversations that are often necessary to spark positive change.

Self-awareness Fosters Empathy for Client Concerns

Approaching a client from a place of empathy, suspending judgement, is an important aspect of connecting with them in a manner that will allow you to engage with their financial behavior.

Even financial professionals struggle with some aspects of their own financial lives. Recognizing and appreciating the complexity of money in your own life can help you approach clients from a place of deeper understanding and empathy.

People don’t try to make bad money decisions. When you look beyond the dollars and cents of financial habits and talk to clients about what they’re truly trying to accomplish, you can start to understand the why behind their choices. Consider the underlying needs that someone is trying to meet when they are making a choice. There is almost always a valid reason for unproductive financial behavior when you get the whole story. Though it may seem illogical on the surface, you’ll find the motivating factors are often quite relatable when you take the time to understand a client’s financial decisions.

Name the Issue and Normalize It

If you recognize a recurring issue in a client’s financial behavior that is detrimental to their long-term goals, it’s important to name it and normalize it. It can be reassuring for a client to hear that setbacks and struggles are a normal part of the process. Validate a client’s concerns and offer reassurance that you will continue to work together collaboratively to help them progress toward their goals.

After clarifying problems and validating concerns, you can start to describe how clients’ financial behavior will impact their long-term financial outlook and begin to guide them in the direction they desire to go. You are in a powerful position to motivate clients to enact change that brings them closer to their goals.

Recognize Unproductive Financial Behavior and Its Effect on Well-being

As a financial planner, it may be clear when clients are overspending or not sticking to their plan. In some instances, this behavior may be driven by something deeper.

Areas of concern that advisors can be dialed into include:

  • Financial anxiety – overwhelming, ruminative, or obsessive worries about finances
  • Financial trauma – early life experiences of financial deprivation or a major event, such as the COVID-19 pandemic or a recession, which can shape beliefs about money that can adversely impact future financial behavior

In these cases, it may be in the client’s best interest to recommend they seek the support of a third party, such as a financial therapist or clinical psychologist.

Help Clients Shatter Their Own Glass Ceiling

You’ll know you’re making an impact when you see clients feeling less inhibited, acting more financially confident, smashing their short-term goals, and getting on track to meet their long-term targets.

Financial professionals are often put in a position to informally address the consequences of an unhealthy relationship with money. Honest discussions about money require courage and candor, but they are an important avenue to help clients live more fulfilling lives.

If you want to take a deeper dive on behavioral finance, I was recently interviewed for an eBook with eMoney, Tapping into the Emotional Side of MoneyThe eBook covers different methods of having these challenging money conversations, delves into clients’ receptivity to this kind of communication, and explores the implications of integrating behavioral finance for the business of financial planning.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

The views and opinions expressed by this blog post guest are solely those of the guest and do not necessarily reflect the opinions of eMoney Advisor, LLC. eMoney Advisor is not responsible for the content, views or opinions presented by our guest, nor may eMoney Advisor be held liable for any actions taken by you based on the content, views or opinions of the guest.

About the Author

Dr. Joy Lere is a licensed clinical psychologist and behavioral finance consultant who practices where Freud meets finance. She has previously served as an Associate Clinical Professor in Clinical Psychology at George Washington University and has held research and clinical positions with Penn Medicine Princeton Health, the Department of Defense, and Children's National Medical Center.

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Welcome to
Heart of Advice

a new source of expert insights for
financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
application, under Help, eMoney Advisor Blog.