It’s an exciting time to be a financial planner. The addition of the psychology of financial planning to the CFP® exam requirements brings to the fore something that financial planners have long understood—money, emotions, and behavior are tightly connected.

I have been fortunate to be able to build a career that revolves around financial planning but that takes me into three different applications of its principles, and it’s helped me become a better financial planner.

The Marriage of Financial Planning, Teaching, and Research

I like to describe my career as a triangle—I’m a financial planner, a university professor, and a researcher, and each of these roles supports the others. The research informs my teaching and my practice, my teaching helps me be a better practitioner by enhancing my skills of communication and engagement, and the planning practice work makes me a better researcher and educator because it gives me real-world experience to share in the classroom, in addition to raising questions that drive my research.

While I understand not everyone has the ability or desire for this three-way career approach, I believe that financial professionals can derive much from keeping an open mind about ways continued learning and research can make them better financial planners. Think of it as expanding your mind to expand your practice.

Incorporating Research and Learning into Your Practice

Because I work at a university that focuses on financial therapy, it’s these “softer skills” that drive my research in behavioral finance and financial psychology. While I’m a financial planner at heart and love going into the deep technical side of financial planning, I also really enjoy helping clients better understand themselves.

In the past it’s been that technical side of financial planning that has driven the industry—financial planners have focused mostly on the economic aspects of their clients’ financial health. But in today’s world, we’ve become more aware of the ways emotions and behavior impact our financial lives.

And clients are increasingly open to exploring the emotional side of their relationship with money. This is especially true among Generations Y and Z, 77 percent of whom say they would pay their financial professionals for additional services that target mental health.¹

This doesn’t mean that financial planners must now become financial therapists, but it’s important to understand how to incorporate these soft skills into your daily practice. Use your own client experiences to drive your research. When clients from my financial planning practice have particular pain points it drives my curiosity to learn more about their origins.

The resulting understanding you’ll gain will help you decide on the approach to take in helping the client follow through on behaviors that will improve their chances for financial success. It will also help you determine if a client would benefit from more in-depth financial therapy.

Start at the Beginning

Whether incorporating behavioral finance into your practice is something you’ve been doing for a while, or you are just getting started, the transition doesn’t have to happen overnight. I recommend starting at the beginning of a new client relationship.

In my practice, we don’t really begin talking about numbers until about the fourth or fifth client meeting. We’ll use questionnaires to collect the financial data, but we spend the initial meetings having conversations and getting to know each other.

Our first interaction with a client consists of a phone conversation where we gather information on the client’s worldview as it relates to money and financial planning—their attitudes, values, stories, and expectations. Whether it’s their investment or financial planning philosophy, we want to make sure the client’s worldview is—or could be—a match for our practice.

If we aren’t in alignment with that client, we will refer them elsewhere. This ability to say no and instead make a referral is very important in getting started with a new client. If the client is not a good fit, your ability to keep them engaged and motivated will suffer and you won’t have a successful relationship in the long run. Success is a two-way street requiring clients to be the right fit for you as much as you are the right fit for them.

Once we decide to move forward, the next thing we talk about is what brought the client in for financial planning. I prefer to use open-ended statements for this conversation—not, “When do you want to retire,” but, “What does retirement look like for you?” I’ll also ask them to consider how, at different points in the future, they will judge whether or not our relationship has been a success. I want to know these two things from this conversation—what drove them to the action of coming in and what does success look like to them.

Use a process of leading from behind—provide the client with the questions or open-ended statements that will drive what they do. Keep the conversation going by saying things like, “What else?” and, “Tell me more.” They probably haven’t had a lot of conversations like this so it’s important to pause and give them the space and time to think about their responses. It’s not easy—the silence is hard—but you don’t want to lead them by providing examples.

Automate Information Gathering

Using technology is key to this approach. It allows you to give clients the forms and questionnaires to fill out that automate the gathering of numerical and quantitative information, thus giving you the time to collect the qualitative information.

One of the tools I recommend planners use is a money attitudes questionnaire. There are many options, but I use the Klontz Money Scripts Inventory and primarily focus on the responses at the extreme ends of the scale. And when working with couples, be sure to examine where their attitudes differ. It’s important to ensure both parties are engaged. If they were at different parts of the scale on certain questions, talk about why that might be. By focusing on their incongruencies you’ll have more success getting them better aligned.

Modernizing the Approach to Financial Planning

There’s an evolution taking place in the financial planning industry to meet the needs of modern clients. As planners, we must do what we can to adapt to these client-driven changes so the industry can satisfy the financial planning needs of future generations.

As planners bring aspects of financial psychology and therapy into their practices, this behavior-driven approach will provide a better understanding of why clients come to us in the first place.

In the end, it will better help us understand our clients’ interior motives and we’ll be able to provide the intrinsic support they need to make them most likely to follow through to achieve successful financial outcomes.

To learn more about the intersection of financial planning and financial psychology, watch a replay of the webinar I participated in with my colleagues Mary Bell Carlson and Ed Coambs: Exploring the Financial Advice Field: A Panel Discussion.

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.

Sources:

¹ eMoney Power to the Plan Research, July 2020, Advisors n=420, End clients n=403

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