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The Value of Emotional Intelligence in Financial Planning Relationships

Sasha Grabenstetter November 10, 2021

emotional intelligence in financial planning

With the CFP Board implementing the new Psychology of Financial Planning Principle Financial knowledge topic, the financial services industry is increasingly focused on the components of financial psychology and emotional intelligence.

Emotional intelligence, or EQ, is a part of the interpersonal cluster of the CFP Board’s Financial Planning Competency Framework. In the context of financial planning, EQ is the ability to establish trust with clients by demonstrating empathy, sensitivity, and commitment to client well-being. EQ is an examination of our own emotions, and when we know our own emotions better, we can then help others understand theirs.

Increasing EQ for Yourself and Firm

We know that even as far back as 2009, financial advisors spend at least 25 percent (or more) of their time dealing with clients’ emotions during client meetings.1 Since then, planning has only gotten more personal and more holistic in nature. Engaging with clients on a deeper level is therefore gaining importance.

Practicing EQ skills can help you learn more about your emotions and the emotions of your clients for closer, more productive planning relationships.

At the broadest level, EQ is about how you handle yourself and others. There are five primary components:

  • Self-awareness
  • Self-regulation
  • Motivation
  • Empathy
  • Social skills

Having higher EQ can enhance your family and relationship dynamics, and your physical and emotional health. It can also help you find and define your purpose, as well as lead to higher levels of success in many aspects of your life.

To get more comfortable with others’ emotions, you first must become aware of your own. This step of learning and applying EQ may feel uncomfortable, but it’s an investment in yourself, your business, and your clients’ experiences with your firm.

Advisors can start with an emotional intelligence assessment and bring recognition to your current level of EQ. Once you know your EQ level, you can learn new tools and techniques to help increase your proficiency in each of the five core areas of EQ.

Increasing your own EQ may involve reading books, blog posts, research journal articles, and listening to podcasts dedicated to helping people advance their EQ. There are also tons of dynamic speakers in the field, hitting on all the five key areas.

To increase your firm’s EQ, review monthly or quarterly case studies examining client emotions during a meeting. Being able to discuss how an advisor could handle that emotion can increase the EQ of all advisors involved.

A firm-wide focus on improving EQ can enhance the level of service you offer clients and contribute to more successful client outcomes.

Creating Deeper Connections with Clients

Client connections are vital to the work of financial advisors. When engaging with clients who are stressed and anxious, or who even seem unwilling to adopt your financial plans, consider learning more about how they were raised and socialized around money.

Ask them about their first money memory, or even the first financial mistake they learned from. Using questions like these can be ice breakers to begin facilitating more personal conversations about money beliefs because oftentimes, there are deeply held financial attitudes that impact financial planning.

For example, parents are considered to be the first influencers on what ideas and beliefs we have around money, effectively acting as our first financial coaches. Research shows that if your advisor recommendations conflict with your client’s parental recommendations, your client may ignore your suggestions.2

By knowing your client’s background, you may increase the likelihood of planning success and build long-term planning relationships.

EQ Can Take Financial Planning to the Next Level

Creating a stronger bond between client and advisor is always important, but even more so now as the ongoing pandemic increases financial stress and anxiety.

According to our eMoney 2020 Financial Wellness Survey – 68 percent of US adults are feeling stress related to their financial health, and another 62 percent of respondents saying that COVID-19 made their financial situation worse.3

Stress and anxiety impact financial wellness by decreasing our overall wellness. According to a recent research report4 from the FINRA Investor Education Foundation and Global Financial Literacy Excellence Center (GFLEC), the major factors that cause high stress and financial anxiety are:

  • lack of assets
  • too much debt
  • money management challenges (things like using alternative financial services)

Some other smaller factors identified in the report were things like comparison of your peer group, family structures, and unexpected expenses putting stress on the family spending plan. A key finding was that people who are financially stressed and anxious are less likely to plan for retirement.

Financial professionals with the skillset to engage with client’s financial stress and anxiety are in a better position to help them affect positive lifestyle changes to improve their financial circumstances.

Better EQ Improves Client Outcomes

Increasing your EQ is a marathon, not a sprint. By learning about your own EQ, incorporating techniques to have deeper conversations with clients, and expanding your EQ tools, your firm can help build healthier and longer lasting client relationships.

At the end of the day, increasing your EQ helps everyone. You’ll be better equipped to build trust and empathy with clients, who will see improved outcomes in their financial planning relationships.

To take a deeper dive on this subject, watch our on-demand webinar Making Money More Human: The Value of Emotional Intelligence in Financial Planning (on-demand version not eligible for CE credits).

 

Sources:

1. Dubofsky, David, and Lyle Sussman. “The Changing Role of the Financial Planner Part 1: From Financial Analytics to Coaching and Life Planning.” Journal of Financial Planning, 2009, 48–57. https://www.financialplanningassociation.org/sites/default/files/2021-03/AUG09%20The%20Changing%20Role%20of%20the%20Financial%20Planner%20Part%201%20From%20Financial%20Analytics%20to%20Coaching%20and%20Life%20Planning.pdf.

2. Szendrey, Julie, and Fiala, Laci. “Family communication, resources, and income in adolescence and financial behaviors in young adulthood.” Journal of Financial Counseling and Planning, 2021.

3. eMoney Advisor surveyed 2,000 nationally representative respondents from 12/09/2020 to 12/11/2020.4. Andrea, Hasler, Annamaria Lusardi, and Olivia Valdes. “Financial Anxiety and Stress among U.S. Households: New Evidence from the National Financial Capability Study and Focus Groups.” FINRA Investor Education Foundation and Global Financial Literacy Excellence Center, 2021. April 1. https://gflec.org/wp-content/uploads/2021/04/Anxiety-and-Stress-Report-GFLEC-FINRA-FINAL.pdf?x85507.

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.

About the Author

Sasha Grabenstetter, AFC® 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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Welcome to
Heart of Advice

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financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
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