Arrow Icon
blog header pale blue image blog header abstract shape

Heart of Advice

Insights and best practices for successful financial planning engagement

left arrow Back to All Articles

The Evidence-based Practice: 3 Examples of How to Incorporate Academic Research into Your Planning Process

Emily Koochel October 24, 2023

A financial advisor reviewing paperwork.

For decades empirical research has served as an integral component for supporting and validating professionals’ best practices. With the rise of financial planning academics, the field of financial planning is no exception.

In a recent panel discussion, I spoke with Drs. Michael Kothakota, CFP®, Timothy Todd, and Stu Heckman, CFP®, about delivering evidence-based service to clients. Through case studies, they demonstrated how you can use academic research to inform your practice.

Below are three studies they shared to help bridge the gap between research and practice. If you want to watch the full webinar and see all the case studies, you can register for the on-demand version here.

1. Impacting a Client’s Intentions with Framing

When you are working with clients, you will want to consider the optimal way to communicate a planning recommendation to them. For example, should you provide the client with the pros and cons of engaging in or avoiding a financial behavior? What impact will that have on their likelihood to take action? Does, and should, the specific planning topic or financial behavior being addressed alter the approach?

Dr. Todd’s research compared the way a planning suggestion is described with someone’s likelihood of following the suggestion. His research used primary data and experimental design to investigate the impact of narrative messaging framing on financial planning intentions for three different financial behaviors: retirement savings, budgeting, and insurance needs analysis.

The research found that framing matters and stories (narratives) are powerful. For example, negative narrative framing reported higher increased mean intention scores across two behaviors: budgeting and insurance needs.1 Negative narrative framing is when you emphasize the risks or dangers of following or not following a suggestion. For example, you could say, “Not implementing this budget could prevent you from accumulating the savings you need to achieve your goal of buying a house.”

Keep in mind that this result does not suggest negative framing should be used pervasively; however, it does suggest that the understanding of the potential negative outcomes may encourage positive behavior. Dr. Todd further suggests that framing effects may be stronger when the frame matches the individual’s regulatory focus – how one approaches pleasure and pain – as some may be more sensitive to loss avoidance while other may be more prone to pursue gains.

2. Using Visualization Tools to Improve Financial Knowledge

An interesting component of becoming a financial professional is that you often find yourself educating your clients, becoming a teacher of financial literacy. With this understanding, Dr. Kothakota’s research was spurred on by looking to better understand how individuals learn and understand information.

In this study, which is discussed in depth during the webinar, Dr. Kothakota explores different modes of communicating financial information to better understand cognitive load and retention of knowledge.

The sample was assigned to one of three groups explaining a financial concept: 1) a group that received only a text explaining a financial concept, 2) a group that received visualization and a text explanation of the concept, and 3) a control that received no intervention. Findings suggest that visualization is a key differentiator across demographics in improving scores in financial literacy.2

This is a powerful example of how research can help inform delivery methods of financial planning information to your clients. Learn more about the impact of visualization and how you can use visuals when you are educating your clients.

3. Expanding Higher Education Discussions

Discussions about funding higher education are commonplace in financial planning. Many financial professionals are accustomed to running calculations to help clients understand how they can fund higher education, avoid student loans, or find the right balance of loans and savings. Dr. Heckman, who has done a significant amount of higher education research, conducted a survey of college students that looked at the risk associated with investment in higher education.

He explained that clients are making financial planning choices well ahead of knowing what the final outcomes would be. When they make their early decisions, they don’t know what their child’s dream school will be. They don’t know if they’ll change majors partway through, leading to a different income trajectory after graduation. They don’t know if they’ll even finish college.

In the paper that resulted from the survey, a number of different analyses led to suggestions that planners should take the educational planning discussion to a deeper level, providing guidance that goes beyond just funding strategies.3 Expanding the education discussion you have with your clients will allow greater exploration of the associated risks, potential outcomes, and what you can do to mitigate those risks.

Elevate Your Planning with Research

Research should be a valued part of any financial planning practice. By staying current with research in the field and being a good consumer of research, you can elevate your planning and give your clients evidence-based interventions to help them achieve their goals.

Watch our on-demand webinar to dive deeper into the importance of research, explore more case studies with our panelists, and learn how to read research papers critically.

Sources:

1. Todd Jr., Timothy M. “Behavioral Economics and the Impact of Message Framing on Financial Planning Intentions,” 2019.

2. Kothakota, Michael G., and D. Elizabeth Kiss. “Use of Visualization Tools to Improve Financial Knowledge: An Experimental Approach.” Journal of Financial Counseling and Planning 31 (2), 2020: 193–208.

3. Heckman, Stuart J., and Jodi C. Letkiewicz. “Navigating Risky Higher Education Investments: Implications for Practitioners and Consumers.” Journal of Financial Counseling and Planning 32 (1), 2021: 131–45.

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.

Image of Emily Koochel
About the Author

Dr. Emily Koochel is an experienced financial professional, academic, and researcher. She currently serves as a leader for eMoney Advisor’s Financial Education and Wellness initiatives in her role as Manager of Financial Wellness. Dr. Koochel’s PhD in Applied Family Science and Master’s in Financial Planning provide a multidisciplinary lens to inform her work where she focuses on understanding the effect of financial behaviors and financial decision making on personal and financial wellness. She serves as a subject matter expert in the field, reviewing and authoring peer-reviewed journal articles, book chapters, and contributing to public scholarship. Most notably, she served as a co-author for the CFP Board’s book – The Psychology of Financial Planning - and was awarded 2020 Outstanding Research Journal Article of the Year by the Association for Financial Counseling and Planning Education. She holds the Certified Financial Therapist – I designation and is an Accredited Financial Counselor and Behavioral Financial Advisor.

You may also be interested in...

Diverse Team in Data Strategy Session

Prepare Now for AI Use in Financial Planning

With the introduction of such generative artificial intelligence (AI) tools as ChatGPT, Gemini (previously Bard), and others, speculation about future… Read More

Modern workplace diversity with smiling colleagues

Fostering Diversity and Inclusion in the Financial Planning Profession

The financial planning profession stands at a crossroads of change. As we push towards creating a more inclusive and diverse… Read More

A financial advisor meeting with clients.

Financial Advisor Compensation Models: Going Fee-only to Future Proof

As technology and automation have advanced, consumers have grown to expect more in every industry, and financial services is no… Read More

eBook: The New Advisor Value Proposition

Download our latest eBook and learn how top advisors are combining Fintech and FinPsych for superior client outcomes.

Download Now

Sign up to have the most popular Heart of Advice posts delivered to your inbox monthly.

Heart of Advice by eMoney Advisors

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.