Journal of Financial Planning: May 2024
Dr. Cherry is the founder and CEO of Concurrent Financial Planning, director of the financial planning program and the Charles Schwab Foundation Center for Financial Wellness at UW–Green Bay, and a renowned speaker. He specializes in empowering individuals to find financial harmony by bridging wealth and well-being that creates their life’s design. Dr. Cherry has over 18 years of experience in financial services and academics, including financial planning and investment management, published research in top peer-reviewed journals, and extensive leadership in the planning profession. He has been cited by the New York Times, Forbes, The Wall Street Journal, CNBC, and Yahoo Finance. He is a Top 10 Investopedia 100 Top Financial Advisor, 2022 ThinkAdvisor LUMINARY Finalist, WealthManagement.com Ten to Watch in 2023, 2022 president of the Financial Therapy Association, past practitioner editor of the award-winning Journal of Financial Planning, and board member of the FinServ Foundation.
“It’s the economy, stupid!” is the famous line coined in the ’90s by presidential election strategist James Carville to help the Clinton campaign focus on the obvious for the hearts and minds of voters. The economy hits home for most folks because the economy encapsulates the wholeness of a person’s life, mind, aspiration, and money. Finding financial harmony is the intersection of financial health and overall well-being. Because I am a champion of no shame / no judgment and practicing compassion, a softened phrase is, “It’s the humanity of money, folks.” It’s life and finances clients can feel and measure when they receive and live the benefits of ideal financial advice.
There’s a misconception among advisers that engaging with clients using the humanity of money approach means you must be a healer to help clients find financial health. There is some chatter in financial advice social media, including LinkedIn and our professional news sources, that integrating financial psychology or the psychology of financial planning, including life planning, is too much.
Furthermore, some advisers feel they are being ostracized for having this belief. The justification is that clients want the Dragnet Joe Friday “just the facts, ma’am” experience. Advisers say clients just want to know, “Do we have enough?”, “Are we going to be OK?”, “Show me how to get there and educate me along the way,” without all the humanity of money “fluff.” Yes, you can answer these questions with just facts or numbers, but absent the investigation and inclusion of the human condition in the planning and outcome of money, there’s no life effect; without life, there’s no plan. So, how can you practice delivering ideal financial advice to people with comprehensive financial health and well-being without being a healer—and grow your practice to boot? Let’s chop.
Unpacking Psychology of Financial Planning
Every CFP® practitioner celebrates doing what’s best for the client and abides by the CFP Board Code of Ethics and Practice Standards but dislikes the process of annual continuing education. So don’t roll your eyes while we begin with the definition of financial planning, which is “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.”
It’s a boring definition, but it is rife with excitement about what it says. Financial planners help people meet their life goals through comprehensive financial advice, which is powerful. What makes the financial planning process powerful is that steps 1 and 2 of the Practice Standards—understanding the client’s personal and financial circumstances and identifying and selecting goals—involve understanding, impacting, and advancing an individual’s unique human condition through actionable financial advice that’s measurable and meaningful and receiving recommendations and education that they can understand (CFP Board 2022). The understanding step must include the gathering and unpacking of qualitative and quantitative client-centric data. Quality of life information, like the client’s attitudes, beliefs, values, culture, experiences, and goals, is meaningful, and you can measure the quantitative information. By the way, meaning is measurable too. It is a feeling of higher levels of subjective and objective well-being!
Furthermore, it’s important to understand what encompasses financial psychology. I recently shared that the psychology of financial planning is the umbrella that covers the person from the rain of emotional aspects of money. It encompasses financial psychology, financial therapy, financial coaching, behavioral finance, and financial life planning, which is captured anecdotally and empirically in two books by the same name, Psychology of Financial Planning (CFP Board; Klontz, Chaffin, and Klontz 2022).
All the domains of the psychology of financial planning involve frameworks and interventions to unlock and understand how clients think, feel, and behave about their finances. The domains have different effects, approaches, and reasons but share the purpose of pairing identity with information to deliver ideal comprehensive advice that clients value. New theoretically grounded research using the financial planning client interaction theory (FPCIT) (Asebedo 2019, 2024) suggests that clients can find value in client–adviser relationships that help them achieve comprehensive financial health and financial wellness. Often, advisers and clients find it hard to quantify the value of advice; however, value is easier to discern when advice is meaningful and measurable and where progress is felt through the advancement of their ideal self.
Here’s where some of the pushback and disconnect occurs. Advisers don’t have to heal clients to achieve financial health. Financial therapy uses the intersection of psychology and financial theories to ascertain clients’ past, present, and future emotional, experiential, and relational relationships with money. This approach can address potential financial and life progress barriers and not cross the ethical boundaries of holding oneself out as an acute clinical healing professional. If clients want to take a non-clinical deeper dive into these areas but the planner doesn’t have the expertise or willingness, they can refer the client to a financial therapist who isolates their work in this area.
The next area of pushback is the audacity to help clients engage in life planning, suggesting that clients don’t have their lives “figured out” already. Many clients have not found the life and money alignment to help them carry out their financial plan to accomplish their life goals. When using some approaches and techniques to unlock and uncover the humanity of money that informs their money strategy, many clients respond, “No one asked me that before,” as though they are waiting to be asked. The key is collaboration. As planners, we help to steward the life that clients aim to design, not define their life design. If we don’t ask, create the experience, and integrate the unique identity information into the plan, another planner will.
Organic Growth and Financial Psychology
The big topic for financial advice firms is organic growth. According to the 2023 Schwab Benchmarking Study, net organic growth, which excludes market performance, for firms above $250 million in assets was 4.1 percent, and those under $250 million grew 6.2 percent. Practice management expert and industry thought leader Steve Sanduski puts organic growth at between 2 percent and 4 percent after you subtract lost clients, client distributions, and advisers’ fees (n.d.). My two cents is that net household added is an objective metric because its fee model is neutral, and if you attract the right clients according to your target market, revenue will take care of itself. How can you attract, retain, and grow your client base sans AUM growth from the market?
The Schwab report and Sanduski offer suggestions on what successful firms are doing to improve their organic growth. Both agree that referrals from clients and business partners help spur growth, are a form of advocacy, and are a key indicator of clients receiving ideal, full-service financial advice inclusive of financial and non-financial aspects—more on that later. Schwab suggests that over half of the firms in their study use behavioral finance aspects in their client interactions, and those firms that use BeFi earned 3.3 times more assets from existing clients. Sanduski mentions that delivering a superb client experience helps the “feel factor” of the client–adviser relationship. For firms that say growth is not their concern, firm shrinkage by client attrition is. Building a connection with your client that bridges unique human elements with quantitative financial strategies produces outcomes that clients can feel most.
What Advice Do Clients Want from Their Financial Advisers?
Studies vary in the specifics of the ideal financial advice clients place the highest value on. Still, they tend to agree on the deliverables generally and align with comprehensive financial planning: people, plan, process. Another underlying thread in high-value advice is understanding, educating, and delivering a comprehensive financial plan to help achieve life goals. Sure, clients want “just the facts,” but they also want to be understood, and they want plans that reflect the understanding and clear and confident application of finances to life goals. Let’s unpack some “facts.”
An American College report (2022) says clients want an adviser who is knowledgeable and displays evidence as such, is trustworthy, can listen and understand your goals, and communicates financial concepts. J.D. Power’s 2023 U.S. Full-Service Investor Satisfaction study defines comprehensive financial planning as “demonstrates an intimate understanding of the client’s lifestyle and goals; puts the client’s best interest first; includes a financial plan; ensures clients understand the fees they pay; and is an integral part of the client’s life.” Only 11 percent of advisers deliver this type of advice, and satisfaction scores rank highest when clients receive comprehensive financial planning. Comprehensive, full-service, holistic—whatever you want to call it, it includes the human element of the client.
A study by eMoney suggests that clients value many aspects of the client–adviser relationship, including transparency in fees, trust, and the adviser’s knowledge (Buhrmann 2023). However, topping the group is advice that “factors in all aspects of their lives.” Industry-respected client engagement expert Julia Littlechild goes beyond client satisfaction metrics to include engagement advice that boosts client confidence, measured by the advocacy metric Net Promoter Score, satisfaction, and loyalty (Fischer 2023). Her studies reveal that clients will advocate for engagement advice, including financial and non-financial goals, at higher rates than just financial goal advice. Still, only half of the clients said their planner helped them with “non-financial goals such as fulfillment after leaving the workforce, health, and quality time with family friends or new experiences.” Furthermore, there is a gap between satisfaction and advocacy rates, where satisfaction can be indicated by 93 percent of clients, but advocacy, seen as making a referral, is 35 percent. The memorability quotient of human intelligence underpins all relevant elements, such as domains of finances and the aspects of financial advice that people value and advocate.
Conclusion
Financial advisers don’t have to be healers to help people find financial health. There’s a spectrum of clients and ways to deliver effective, comprehensive financial advice that people value. What’s clear is that the humanity of money touches all facets of planning, and people value what they can measure and feel. Knowing your strength as a financial adviser and your familiarity with your client base will inform to what degree you want to infuse aspects of humanity into your firm’s process, purpose, and plans. To enhance client engagement domains, empower the quality of your comprehensive financial advice and encourage client advocacy; it’s the humanity, folks.
References
American College, The. 2022, March 1. “What Do Clients Want from Financial Advisors?” www.theamericancollege.edu/knowledge-hub/research/what-do-clients-want-from-financial-advisers.
Asebedo, Sarah D. 2019. “Financial Planning Client Interaction Theory (FPCIT)” Journal of Personal Finance 18 (1): 9–23.
Asebedo, S. D. 2024. “The Value of Financial Planning—A Theoretically Grounded Approach.” Australasian Accounting, Business and Finance Journal 18 (1): 26–43.
Buhrmann, Joe. 2023, July 18. “What Do Clients Want from Their Financial Advisor?” eMoney. https://emoneyadviser.com/blog/what-do-clients-want-from-their-financial-adviser.
CFP Board. 2022, January. “Guide to the 7-Step Financial Planning Process.” https://www.cfp.net/-/media/files/cfp-board/standards-and-ethics/compliance-resources/guide-to-financial-planning-process.pdf?la=en&hash=A8F02CC2451BE07E4FB05DE009A64F68.
CFP Board. 2022. The Psychology of Financial Planning. Erlanger: ALM.
Charles Schwab. 2023. “Insights from the 2023 RIA Benchmarking Study.” https://content.schwab.com/web/retail/public/about-schwab/schwab_ria_benchmarking_study_2023_deck.pdf.
Fischer, Michael S. 2023, July 13. “If 90% of Clients Are Satisfied, Why Do Only 35% Make Referrals?” ThinkAdvisor. www.thinkadvisor.com/2023/07/13/if-90-of-clients-are-satisfied-why-do-only-35-make-referrals/.
J.D. Power. 2023. “Investor Satisfaction with Full-Service Financial Advisors Crumbles as Markets Fall, J.D. Power Finds.” https://www.jdpower.com/business/press-releases/2023-us-full-service-investor-satisfaction-study.
Klontz, B., C. R. Chaffin, and T. Klontz. 2022. Psychology of Financial Planning: The Practitioner’s Guide to Money and Behavior. John Wiley & Sons.
Sanduski, Steve. n.d. “3 Ways to Cultivate an Organic Growth Culture.” https://stevesanduski.com/organic-growth-culture/.