When Financial Planning Becomes Therapy
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
If you’re a fan of the television show Friends, you know the opening line of its theme song: “So no one told you life was going to be this way….”
The same can be said for your career as a financial advisor. When you were preparing for it during your college days, odds are no one ever told you you would need to be a therapist as well as a wealth manager.
Maybe “therapist” is a bit strong.
But there is truth to that claim. You’re more than a clerk taking an order at a McDonald’s drive-thru window in our profession.
We do far more than placing buy and sell orders for our clients. A good advisor – someone who cares not only about providing top-quality service to the people who entrust you with their wealth but who genuinely wants to see them achieve their personal goals – invests the time necessary to know their clients on a one-to-one level. As the client-advisor bond grows more intimate, sensitive information is revealed.
For example, let’s say the client tells you they want to be able to pay for their child’s college education. You naturally follow up by asking questions about that child, like, “Tell me what they are like. What are their interests? Do they play any sports?” In no time, the client confides in you. She may tell you the child is experimenting with alcohol and other drugs, that they’re worried the child lacks a sense of direction, and that the child may not be able to get into a good college. Or the parents frown on the child’s romantic relationship.
Suddenly, you’re confronted with things not covered in the CFP curriculum.
This happens because of the “80/20 rule.” That’s where the client spends 20% of your time together talking about their finances, and you spend 80% of your time in the therapist role.
While you might not have anticipated this situation, here’s an important suggestion: Relax! It happens to all of us. Embrace it as a compliment. It’s a sign that you have created a “safe space” where the client feels secure enough to open up and share personal details. It is proof you are invested in a successful relationship with them.
Then there is the financial aspect of your therapist role. That’s where things get interesting.
When markets are dicey – and we’re seeing plenty of that these days – investors get jittery. This is red-flag territory because clients are likely to make rash decisions when they react emotionally to economic or political news or personal events. In a recent Charles Schwab survey, 84 % of financial advisors reported having had to calm clients' nerves lately. Go ahead and plan to spend more one-on-one time with clients during those times, too.
You will wear a therapist hat on top of your wealth manager cap.
This reminds me of a study Vanguard did on the value of an advisor. In that report, respondents said more than half of their financial advisor’s value came from the advisors' behavioral coaching.
That’s important because, as I’ve shared often before, people are emotional about their wealth. Dr. Cole Cash bluntly says in my book, Dr. Cole Cash Will See You Now, that humans are “funny with their money.” And that is the direct result of our emotions, fears, and how we were raised.
Remember the 80/20 rule I mentioned earlier? I practice a 90/10 version and find it works much better. Let me explain why.
I see 90% of our job as being a psychologist for our clients. The other 10% is investing. The investing part is easy. You know the markets, the financial forecasts, and how to handle money. The hard part is helping clients understand why to stay invested in the tough times and not to get too greedy when times are good.
You and I are all too familiar with the rollercoaster of emotions investors go through and how the client often finds themselves selling out at the bottom after their fears have finally bubbled up. By the time they reach the point where they are comfortable enough to get back into the market, they have lost out on significant potential asset growth.
That’s the scenario we want to help them avoid.
Our job as financial advisors – one that will never go away or be performed by computers – is to provide a human connection. Humans need other humans to help walk them through the mental hurdles they create for themselves. And when it comes to money, those hurdles can grow higher and higher. And higher still.
Here’s what I’ve learned over my years of being a wealth manager: The best way to assist my clients is to focus on investing the time necessary to help them on the psychological side of things early and often. Adopting such a strategy creates raving fans for you as an advisor and pays huge dividends in the future.
Early in my career, I spent a ton of time helping people understand the emotional side of investing. When the markets were volatile, I had long sessions with my clients, helping them both identify the emotions they were going through and understand why they were experiencing those feelings.
I spent time holding their hand and guiding them through scenario analysis so they could clearly grasp their situation and quickly understand what it meant for the future. And from there, we pushed through the turbulence together.
When times eventually improved, I spent more time talking to them about how they felt during the rough stretch and asked whether they wanted to make changes to their investment strategy.
I do this with all my clients. This year’s market volatility has proven the value of this strategic approach to investing. Throughout the negative headlines and volatility, my clients didn’t budge. My inbox wasn’t flooded with frantic emails, and my phone wasn’t ringing off the hook. Because I had put in the time to prepare my clients from a psychological standpoint for challenging markets and uncertain global environments, they have the tools necessary to understand and handle volatility.
Those clients now call me in tough times to say thank you because they haven’t worried. It was all a result of the many one-on-one conversations we’d had before.
I leave you with a bit of hopeful news. We’re seeing the first signs that colleges and universities recognize the critical role that behavioral coaching brings to the client relationship. Schools are introducing financial psychology and behavioral finance studies. Tomorrow’s financial planners are studying emotional intelligence, understanding family dynamics and employing psychotherapy tools.
If this trend continues, and I hope it does, we’ll have to edit the Friends theme song to say, “Remember, they told you life was going to be this way….”
Matt Reiner is a CFA, CFP®, and partner at Capital Investment Advisors, a $2.8+ billion RIA in Atlanta. Reiner is also CEO of Wela Strategies, a sister company to Capital Investment Advisors, and is the founder and CEO of Benjamin™. Benjamin is an AI technology created by Reiner after seeing the gaps in technology used in his own firm. Reiner's true passion is using his vast experience to coach other advisors across the country, helping them evaluate their firms' practices and find the best strategies for future success. To reach Matt Reiner, visit www.MattReiner.com.