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The Power of Empathy in Financial Planning

Sasha Grabenstetter March 26, 2024

A financial advisor speaks with a client.

Financial planning is a highly personal and sensitive matter. It requires financial professionals to forge a trusting relationship between themselves and their clients to foster communication and collaboration.

Empathy is an important tool for financial professionals to harness because clients are more likely to trust planners who understand their emotions and respond appropriately.

What Is Empathy?

I define empathy as sitting with others and understanding what they are feeling. It enables you to imagine yourself in someone else’s position, see things from their perspective, and emotionally understand what they feel.

One aspect of empathy that is important to understand is that there are three primary types:

  1. Emotional empathy, which is the ability to feel what another person is feeling.
  2. Cognitive empathy, which is the ability understand another person’s thoughts, feelings, and perspective.
  3. Empathic concern, which is being able to tune in and understand what someone requires from you.

As a financial professional, your focus will be on cognitive empathy and empathetic concern. You don’t need to be able to physically feel what your client is feeling; you need to be able imagine yourself in their shoes and understand their perspective.

While you may not have experienced exactly what your client is experiencing, you can still relate to what they are feeling and make them feel heard. When you utilize cognitive empathy and empathic concern together, you will be able to understand your clients’ feelings and help them cope.

Empathy Is a Powerful Tool for Financial Professionals

Putting empathy at the forefront of your interactions with your clients will help you build trust, rapport, and long-lasting relationships. If a planner has a lack of empathy, their clients will be able to recognize that. It cultivates an environment where clients may interpret their financial advisor’s actions as predominantly profit-oriented, thereby undermining the perception of a client-focused approach.. Demonstrating empathy shows that you genuinely care about your client and their well-being, which makes them more likely to open up and trust you with their financial concerns.

Empathy also helps you navigate the emotional side of financial planning. Emotions play a significant role in financial decision making. Recognizing and acknowledging your clients’ emotions with empathy shows your clients that you genuinely hear and understand their concerns. You will be able to address their concerns with sensitivity and respect, as well as give them personalized advice that meets both their emotional needs and financial goals.

Three Ways to Develop Greater Empathy

Empathy isn’t solely innate–it’s a skill that you can learn and improve. If you are looking to demonstrate greater empathy in conversations with your clients, here are three ways you can hone this powerful skill.

1. Strengthen Your Listening Skills

Developing strong listening skills is crucial if you want to have greater empathy in your interactions with your clients. When you use empathy, you are making sure your clients feel heard and making a connection with them. You can’t do that without listening. Effective listening takes practice, but there are tactics you can use to become a better listener.

Key strategies to try include talking less and listening more, as well as slowing down to focus on the client’s message instead of preparing a response. When you focus on what the client is saying instead of what you are going to say next, you will signal to them that you are truly listening and they will feel heard.

2. Practice Your Empathetic Responses

One of the first things you can do to practice demonstrating empathy is to try it out with people you feel comfortable with, whether it’s your family, friends, or colleagues. You could do a role-playing exercise with your colleagues where you practice how you will interact with clients who are in a situation where there needs to be an emotional response, such as the loss of a loved one. You will be better prepared to have these kinds of conversations with your clients if you have practiced similar conversations ahead of time.

3. Be Curious and Expand Your Horizons

Cultivating your sense of curiosity can help you have greater empathy for others. Talk to new people and try new things. Gaining new experiences will broaden your perspective and make it easier for you to put yourself in other people’s shoes.

This is especially important for those who are looking to start pro bono planning. Taking the time to get insight into what it is like to be homeless, unbanked, or underbanked can help you better understand the perspective of potential pro bono clients.

Start with Increasing Your Emotional Intelligence

When you know your own emotions better, you can better practice empathy and help others understand their emotions. Empathy is one component of a broader skillset called emotional intelligence, which includes the ability to manage your own emotions. If you are just starting to explore empathy, learning more about emotional intelligence is another step you can take to hone your skills.

Watch our on-demand webinar Planning with Emotional Intelligence to learn more about how you can further develop your emotional intelligence skillet.

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.

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About the Author

Sasha Grabenstetter, AFC®, BFA™ is a Financial Planning Education Consultant at eMoney Advisor. She is an integral part of the internal and external financial planning education programs, as well as financial planning content development. Sasha won the 2020 Outstanding Symposium Practitioners' Forum Award from the Association for Financial Counseling and Planning Education. She previously co-authored “Apple Seed: A Student Guide to Pro Bono Financial Planning” and “All My Money: Change for the Better.” With close to 10 years in financial education, Sasha received her AFC® designation in 2015 and graduated with her master’s degree from Texas Tech University in 2012.

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