As the financial advice profession has matured, behavioral finance has become an increasingly important element of modern advice. This holistic approach to financial advice, often referred to as life planning, focuses on helping the advisor understand the client’s financial history, deep-seated goals, and overall relationship with money, which can allow for more targeted and comprehensive advice. However, for advisors who want to explore financial psychology with their clients, it may be difficult to determine when – and whether – to go deeper, and how to handle high-emotion conversations gracefully without overwhelming clients.
In this 168th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the pros and cons of holding financial psychology conversations early in the client (or prospect) relationship – and how to determine whether a deeper exploration of the client’s financial history is appropriate in the first place.
From the prospect’s point of view, it’s easier to not hire a financial advisor than it is to hire one (at least in the short term). Sifting through advisors’ websites, fee schedules, and other information can require substantial effort. While some prospects may seek an advisor’s behavioral coaching – especially if the advisor markets themselves as a behavioral finance expert – the majority are motivated by a specific event that propels them to begin the process. As such, a prospect usually comes to an advisor with one key stressor in mind, and it may feel jarring to hear questions like, "What is your first memory with money?" These questions, though intended to build trust, may inadvertently leave clients feeling disoriented or uncomfortable if they were expecting a more straightforward problem-solving approach.
Instead, advisors may find more success in leading with solving the problem that the client immediately presents, and then, over time, gradually exploring the client’s financial background as trust develops. This process of earning permission to go deeper can take months – or even years! – of consistent, high-quality work. Such an approach may also create a more organic environment for advisors to practice and hone their empathy and behavioral finance skills.
Ultimately, the key point is that starting a financial planning relationship with introspective behavioral finance questions may feel jarring to the client unless the advisor has an express specialty in life planning, and the prospect is expecting that approach. For many prospects, it can be more effective to start by addressing the immediately presenting problem and, once trust has been established, dive to gradually explore their money stories together. And in the meantime, it’s worth remembering that the so-called technical work of financial planning isn’t ‘just’ technical – it often involves an incredible amount of emotional support and can go a long way towards helping clients realize their most important financial goals!
