The financial planner as a thinking partner

Thinking with clients or for clients?

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Rob Macdonald, Head of Strategic Advisory Services, Fundhouse
Rob Macdonald, Head of Strategic Advisory Services, Fundhouse

I believe a key role a financial planner plays for a client is that of a Thinking Partner. The dilemma this raises is whether this means the financial planner must think for the client or with the client.

The quality of advice is as important as how it is delivered

Emotional and economic well-being are both key to financial health. The link between money and life is also clear. The two are inextricable. And that’s why even though clients may go to a financial planner for advice, getting advice too quickly may be more damaging than helpful. It is not only the quality of the advice that counts but also how that advice is delivered. In other words, what a client talks about with a financial planner before receiving advice is key.

Financial planners are wired to advise clients. It’s in their DNA. And it’s what clients expect from them. Clients often want their financial planner to tell them what to do. The problem with this approach, as much as clients want it, is that it makes the financial planner accountable for their client’s life and money. This may seem justifiable because, after all, the client is paying for this advice. So if things don’t work out, the client has someone to blame. And of course, they can then switch to a new advisor. In a sense, they have “rented” the financial planner’s advice or solution rather than taken ownership of it. Much easier for them. And, in some ways easier for the financial planner, although they may lose an unhappy client now and again.

Economic and emotional well-being are key to financial health

Yet, client ownership of the outcome is key to clients achieving good financial outcomes. Research by Sarah Newcomb of Morningstar shows that for clients to achieve genuine financial health, they need both economic and emotional well-being (1). Wealthy people who spend little are at risk of being as financially unhealthy as happy people who spend generously.

It is not only the quality of the advice that counts but also how that advice is delivered.

Newcomb suggests that economic well-being depends not so much on how much money clients have, but rather on the extent to which clients think into the future. Newcomb’s research shows that people with a full financial life plan save up to 20 times more than people who are only able to think a year or less into the future. Accordingly, it is a client’s time horizon more than their income that determines economic well-being, and Newcomb’s research shows that this influences not only savings habits but cash and debt management as well.

Emotional well-being has a critical influence on how we manage our money. According to the American Psychological Association, money is consistently the number one source of stress for US households (2). Newcomb suggests that “by identifying specific patterns of thought that may sabotage a client’s overall financial health, an advisor can help guide clients into making better financial decisions and increase their satisfaction and peace of mind” (3).

Client ownership and empowerment determine financial satisfaction

Newcomb’s research shows that irrespective of income, people who feel empowered in their financial lives feel more emotionally satisfied with their financial lives. People who agreed with the statement “I create my financial destiny” had more positive experiences regarding their financial situation than those who said they had “very little power” over their financial life.

When a client seeks financial advice, for that advice to land it is key that the advice makes sense to the client from their unique perspective. It’s not enough that it makes sense from the advisor’s perspective, which would be fine if the job of a Thinking Partner was to think for a client.

A financial Planner and client going through financial informayion

Newcomb’s research reinforces the importance of clients taking ownership of their financial circumstances, even when seeking financial advice from a professional. It also highlights the role of financial planners in helping clients to think as far as possible into the future with as much detail as possible. This suggests that the key to the role of a Thinking Partner is to think with the client, in other words, get the client to think, rather than think for the client. That way there is a greater chance that the client will own the outcome of whatever advice the financial planner eventually gives.

After all, we each have a unique perspective on the world that is influenced by a myriad of factors, including our upbringing, family, education, culture, values, habits and language, to name only a few. This unique combination underpins each of our perspectives on the world and gives truth to writer Anais Nin’s observation that “we don’t see things as they are, we see them as we are”.

Thinking with a client means getting a client to think for themselves

While clients see financial planners for advice not coaching, adopting a coaching approach with clients can help clients think for themselves and feel empowered before the financial planner gives advice. A coaching approach involves getting the client to find the answers to questions they may have. Often a question may be technical, in which case the financial planner may be best positioned to answer the question. But when the question is about their own life, the client undoubtedly will take more ownership of the answer if they come up with it themselves.

Thinking with a client means getting a client to think for themselves. It’s tempting to want to do the thinking for the client. To believe that is a way to show real value and expertise. But getting a client to think for themselves is the real work of a Thinking Partner. It is a way for clients to feel empowered, take ownership of their financial health, and ensure that when the seed of expert advice is given, it lands on fertile soil.


References

  1. Sarah Newcomb, When More is Less: Rethinking Financial Health, Morningstar Behavioural Science Research, 2016.
  2. American Psychological Association, Stress in America Survey, October 2022.
  3. Sarah Newcomb, When More is Less: Rethinking Financial Health, Morningstar Behavioural Science Research, 2016. p.7
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