Articles About Financial Psychology

For many financial advisors, encouraging new prospects to "think it over" at the end of an initial meeting can seem like a gentle way to offer the prospect space to decide whether the relationship will be right for them, while at the same time, keeping the advisor from feeling that they may be coming across too aggressively by making an immediate sales pitch. However, when a prospect meeting goes really well, and the prospect clearly sees the benefit of engaging with the advisor, ending the meeting with "Think it over" can interrupt the momentum of the meeting and send mixed messages to the prospect that, even though the meeting went really well, the advisor wasn't that enthusiastic about the potential relationship (because otherwise, why wouldn't they have asked them about the next steps to engage?). Instead, advisors can take a more direct approach in introducing the next steps to becoming a client during a discovery meeting to keep the momentum going and potentially increase the chances that the prospect will become a client.

While using an approach that encourages a customer to "think it over" can work well when selling products on a transactional basis between the salesperson and the customer (especially for high-cost products where the customer's behavioral biases come into play and offer the strategy powerful support), selling services to be rendered through an ongoing relationship (such as financial advice) is a very different process and requires a different approach to result in successful sales. In particular, financial advisors who offer ongoing services to clients can focus on 3 key areas that are unique to service-based sales as part of a successful sales strategy. These include 1) minimizing the prospect's uncertainty, 2) understanding their specific problem, and 3) being a 'true' service professional (who not only is capable of selling what's being offered but can also actually follow through and do the job with skill and expertise). Which means that it's more important for advisors to sell a prospective client on their ability to skillfully understand and solve the prospect's specific problems (rather than using tactics better suited to product sales).

For advisors who may feel anxious about coming across as too aggressive in asking for the sale in the first prospect meeting, supplying an agenda in advance that clarifies that the sale – the process of signing up as a client – will be discussed can make it easier by externalizing the issue and knowing that the prospect won't be surprised by the conversation. With this approach, the prospect still has the option to agree to take the next steps to become a client or, if they're not quite ready, to tell the advisor that they still need time to think things over. Regardless of whether they are ready or not, initiating the discussion on the next steps (and with the support of an agenda) can be an effective way to close the meeting without killing the momentum while reassuring the prospect that they would be a valued client and that the advisor is very much interested in working together.

Ultimately, the key point is that selling products and selling services are 2 very different processes, and encouraging prospects to "think it over", while perhaps an effective product-sales tactic, is a less effective way to close a service-based financial planning relationship. Instead, by communicating that they have the skill and expertise to help the prospect identify, understand, and address their specific problems and can ultimately help them minimize the uncertainty that they've been struggling with, advisors can build and leverage valuable momentum with the prospect during the first meeting, potentially increasing the chances that the prospect will agree to become a client by the end of the conversation!

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One of the key steps in the financial planning process is presenting the plan to the client, which has traditionally been done as part of a single 'plan presentation' meeting that takes place once the advisor has gathered and analyzed all of the client's data. While this approach may have made sense in a time when the 'plan' itself was mostly limited to investment recommendations (which the advisor would be able to go on and implement themselves since they were managing the client's assets), financial planning has come to cover more and more areas of clients' lives, with a widening breadth of financial planning recommendations in kind – to the extent that trying to cover the entire plan in 1 session can result in an exhausting and overwhelming ordeal for both the client and the advisor.

In this article, Kitces Senior Research Nerd Meghaan Lurtz writes about what the most recent Kitces Research study on Advisor Productivity reveals about how advisors deal with the challenge of delivering more and more information to clients, and how it's possible to keep clients engaged in the process of presenting financial plans… without resorting to longer planning meetings.

As the latest Kitces Research reveals, advisors are increasingly turning to collaborative financial planning software, which – at least in theory – can help to keep clients engaged by turning the planning meeting into a back-and-forth discussion versus a 1-sided lecture. However, the danger of relying on software to facilitate collaborative financial planning is that if either the advisor or the client isn't familiar enough with the software to leverage its features, the software can instead be a blocking point for the advisor in delivering the information (making it less likely for the client to implement the advice, since they may not fully understand it in the first place) while eating up valuable meeting time focused on the technology… and not the client or their plan.

One approach that can help create a more engaging and productive plan presentation is to 'flip' the meeting so that some (or most) of the information is presented in advance rather than during the meeting itself. By sending meeting materials (including recommendations) in advance up front, clients can absorb and reflect on the information on their own time, freeing up meeting time to focus on questions the client has (which will presumably be more thoughtful and relevant after spending some time to think about them, versus 'on-the-spot' questions that arise immediately after the advisor presents the information). Not only can sending user-friendly materials (such as short video clips recorded in apps such as Loom) help clients better engage with the financial planning recommendations, but they can also help clients establish a baseline knowledge of the technology required for key analyses (e.g., Monte Carlo analysis) that might otherwise be difficult to understand when first encountered in a plan presentation meeting. This allows the advisor to focus on the client's plan and recommendations instead of on how the tech is used.

Ultimately, sending planning and educational materials to clients in advance helps advisors transform the plan 'presentation' meeting into a plan 'engagement' meeting. And because materials sent in advance only need to cover the basics, they don't necessarily need to be personalized – meaning that the advisor can create a handful of broadly applicable videos to use over and over again to educate clients before diving into the details in the meeting itself. The net outcome, then, can be not only to reduce the amount of time needed for meetings themselves, but also to make the time spent in the meeting more engaging and valuable for the client!

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One common sales tactic for financial advisors is to offer prospective clients a free (or low-cost) financial plan to demonstrate the advisor’s expertise and to let the prospect ‘test drive’ the advisor’s services. However, creating these pre-commitment strategies and plans can take up a significant amount of an advisor’s time and there is no guarantee that the prospect will actually decide to become a client (in which case the advisor’s work would have generated little or no revenue). Further, when combined with the work the advisor does for current clients, the ‘extra’ work of creating free plans for prospects can easily lead to advisor burnout. However, by asking prospects a series of screening questions to assess whether they might be a good fit for the firm, and by emphasizing the value of the process and implementation of financial planning, advisors can better determine whether preparing an up-front plan for them is likely to end up being a profitable tactic.

Advisors can start by determining whether a prospect might be a good candidate for an up-front financial plan with a series of questions that ask whether they can meet the firm’s asset and/or fee minimums (to screen out prospects who will clearly not be a fit), how ready the prospect feels to get started, and whether the prospect is willing to follow through with the advisor’s onboarding and data-gathering processes. These questions can help the advisor confirm that the prospect would be a suitable client and will be able to meet the advisor’s timelines (so that the creation of the up-front plan does not drag on for weeks or longer). Once an up-front plan is created, focusing on the value of plan implementation and the ongoing financial planning process can increase the likelihood that the prospect will decide to engage as a client. As while the free plan may demonstrate the advisor’s expertise and knowledge of the prospect’s situation, the course of action that the advisor takes with the prospect (after they sign on as a new client!) to implement the plan as part of an ongoing relationship is even more valuable than the plan itself.

Ultimately, the key point is that while the preparation of free or low-cost plans for prospective clients can be a useful sales tactic, advisors who don’t have a process in place to assess prospect suitability and to showcase the true value of the planning relationships can suffer from burnout, preparing plans for prospects who are unlikely to become full-time clients. But by implementing simple steps to formalize a screening process and have conversations to emphasize the value of the long-term financial planning process and plan implementation offered to clients who have a relationship with the firm, advisors can improve their rate of converting prospects into clients, spend less time preparing free plans for the wrong prospects, and even enjoy a potential boost to their own overall well-being!

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Financial advisors often approach discovery meetings with prospects as an opportunity to ‘sell’ the value of the financial planning services they provide. This is often done by having the advisor learn about the prospect’s needs and show the prospect how the advisor can help them achieve their financial goals, ideally motivating the prospect to sign up for the advisor’s services. But for some prospects, the value they will get from an advisor is not just in the dollars and cents of planning, but also in making changes to their behavior. Which means that advisors can help prospects get on the path to change (often starting with actually signing up for the advisor’s services!) by using financial psychology and behavior change principles with effective discovery meeting questions.

The Transtheoretical Model (TTM) of change offers a framework that can help financial advisors motivate clients who might be resistant to or struggling with change. TTM involves a 6-step process, where each step is designed to help individuals progress through change. Notably, the TTM process intersects with the financial planning process and the common challenges that arise in financial planning meetings can often be aligned with and explained by the different stages of TTM. For instance, new prospects might still be in the pre-contemplation stage of TTM, when they aren’t clearly aware of the problems they should solve, or they may be in the contemplation stage of TTM, when they are aware of a problem but aren’t yet ready to take action on it. In these cases, deciding whether there is value in engaging with an advisor at all and whether they will be able to follow through on what the advisor will ask them to do are often the key challenges for prospects that the advisor can address in the discovery meeting.

With this in mind, crafting the right questions to help prospects absolve themselves of the doubts they may have about an advisor’s value and their own ability to take on the responsibility of following their financial plan can serve both the prospect and the advisor well – because building up a prospect’s confidence in the advisor’s value and in their own capability to follow their plan (with their advisor’s support, of course!) will increase their own chance of success as well as the likelihood that they will sign on as a client.

Accordingly, there are 3 questions advisors can ask to address doubt by understanding what makes their prospects feel dissatisfied. These include asking about the prospect’s (dis)satisfaction with their net worth, with their financial decision making and self-confidence, as well as with their financial relationships. Together, these questions can help the advisor discover specific challenges that the prospect faces and start a conversation about how working with the advisor could help address these issues.

There are also 3 questions that explore the forces leading prospects to delay and procrastinate. These include exploring how prospects value action, talking about next steps, and asking the prospect to get started working with the advisor. These questions and the resulting discussion can help spur prospects to take action by officially becoming a client.

Ultimately, the key point is that while asking these 6 questions all together might not necessarily result in more prospect discovery meetings or better conversion rates, advisors might find that new clients are more likely to comply with their plans and take action on their tasks when this approach is used from the start of the relationship. Because at the end of the day, the more advisors are able to support the process of behavior change in their client relationships, the easier and more impactful their client work will become!

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There are many financial advisors who take issue with the financial advice offered by popular personal finance personalities such as Dave Ramsey. Some disagree on technical details like the plausibility (or purported lack thereof) of his assumptions for future investment returns, while others criticize broader elements of his approach (like his reliance on rules of thumb and a one-size-fits-all approach to building wealth). Whatever the reason, many advisors dismiss Ramsey’s guidance without considering why the advice is so popular in the first place.

But Dave Ramsey's huge following in the general public – and the number of people who testify that his methods have helped them make progress towards their financial goals – suggests that there is clearly something in his approach that resonates with many people. So for advisors, it may be worth exploring whether there is anything to be learned from Ramsey's approach to financial advice – even if they may disagree on the details, advisors may find in Ramsey's advice a new and perhaps better way to communicate with (and motivate) clients.

One core element of Ramsey's teachings is his "Baby Steps" process for building wealth, which lays out a seven-step sequence for everyone to follow: 1) build a $1,000 starter emergency fund; 2) pay off all (non-mortgage debt); 3) save a 3- to 6-month emergency fund; 4) save 15% of income for retirement; 5) save for children's education; 6) pay off the mortgage early; and finally, 7) build wealth and give.

Though many potentially valid criticisms of this process tend to concern technical details (e.g., the ideal size for an emergency fund, how much income should really be saved for retirement, etc.), what makes Ramsey's Baby Steps so popular among the general public is that they are easy to implement and are geared towards getting the individual to take action with as little friction as possible (in contrast to more advanced steps that would require additional research or analyses to complete). In other words, instead of focusing on a complex, customized plan based on a person's unique circumstances that might make for an ideal financial plan on paper, the Baby Steps are geared toward laying out a clear and inviting path for action – which might be more attractive (and effective) from a non-expert's perspective.

For advisors, the takeaway here is not about whether the Baby Steps offer the best advice for those who follow them, but that there could be merit in providing clients with a clear and cohesive set of steps (similar to a checklist) that helps them orient themselves in terms of where they currently stand in the process and what actions lie ahead. Additionally, a checklist-based framework may even help advisors be more efficient in their planning since it can be a way to systematize the planning process into a set of repeatable steps across many clients (particularly if the advisor serves a specific niche where the steps for building wealth might really be similar across the advisor's whole client base)!

The key point is that a checklist-style approach to financial planning can provide clients with a better understanding not only of what actions they should be taking immediately but also of the goals they are working towards in the long run. Focusing on action-oriented next steps rather than on the technical details behind them can help clients reconcile some of the knowledge gaps that might keep them from making progress toward their goals.

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