Using Financial Psychology to Better Connect with Clients
Emily Koochel, Ph.D., AFC®, CFT-ITM Senior Financial Planning Ed Consultant Financial Planning, eMoney
Consumers lack confidence in their ability to reach their financial goals. In a recent eMoney survey1, almost half of consumers polled used negative words—such as stressed, overwhelmed, worried, and unprepared—to describe their financial situation.
The study further revealed a widespread misunderstanding of the financial planning process and who it serves, coupled with uncertainty and mistrust. What consumers seek is peace of mind, confidence, and the help they need to make meaningful changes to their financial lives.
When eMoney investigated how clients want their financial planner to engage with them, elements of financial psychology began to appear. Clients indicated they want someone who works to understand their financial anxiety and their beliefs, behaviors, and attitudes toward money—all of which can be uncovered when advisors adopt the use of financial psychology into their practices.
Financial planners must seek to understand what is important to the client and why—remembering that we are neither perfect nor rational and our behavior doesn’t always align with what we declare is important to us. It’s imperative to begin paying attention to influencing factors that may be causing discrepancies between what a client wants and the actions they are taking.
Deepening Client Relationships Through Financial Psychology
Many advisors believe they are integrating financial psychology practices by establishing rapport with clients, using reflective listening, and discouraging hasty decisions and herd mentality.
But despite their best efforts, clients reported they want to work with someone who will assess where they are now and create a plan to reach their future financial goals. They want to be exposed to new ideas and different opinions. And perhaps most relevant to financial psychology, they want someone who will work with them to identify where they are hesitant to make financial changes and help them follow through.
Money is inherently emotional, and the way people react to, handle, and make decisions about their finances can often be attributed to events they have experienced throughout their lives—both positive and negative.
Getting to the heart of a client’s money story may require confronting some of these emotions through difficult conversations. When we asked advisors about their comfort level discussing personal topics, we saw a steep decline when we moved away from traditional planning topics like retirement and investments, towards conversations such as those around serious illnesses, divorce, and premarital planning.
While there may be reluctance to address these emotive conversations, advisors who seek understanding and look to help clients navigate these emotions, build and deepen relationships more effectively.
And technology can help. Using features such as a digital intake form prior to meeting a new client, can allow the planner to gather information that can be further addressed during the meeting, freeing up time to dive deeper to develop a more personalized plan.
For many clients, technology offers a way to see their financial journey more clearly and track their progress, offering greater peace of mind. In addition, planners can use technology to communicate pertinent information and education quickly in times of volatility and distress, letting clients know the planner is already looking out for their interests.
Financial Planning Support in A Volatile Market
It’s no secret that Americans are stressed about money, and according to financial experts, consumers’ financial stress has only gotten worse due to the global pandemic and subsequent record-level inflation and market volatility. The American Psychological Association’s latest 2022 Stress in America survey found that 72% of Americans reported feeling stress about money.2
When eMoney asked consumers what was concerning them most about their finances, inflation—and its impact on prices, as well as being able to pay bills—topped the list. It’s the underlying fear caused by these factors and the resultant stress levels that begin to take their toll on a client’s psyche. These fears include losing the ability to provide for their family and the fear of losing their job and home.
The study indicates that when it comes to managing the stress that accompanies volatile market conditions, clients who set financial goals and see them through, have a financial plan and proactively manage it, and have enough emergency savings to ride out a recession feel more in control of their finances.
In addition to these financial planning techniques, incorporating financial psychology practices can help better equip clients to tackle these underlying fears and roadblocks that may stand in the way of achieving their desired financial success.
Building a Financial Psychology Skill Set
The idea behind the incorporation of financial psychology into standard practice is to add to the financial professional’s toolbox they use to work effectively with clients. Borrowing from the counseling profession, here are three basic techniques financial planners can use in their practice.
1. Effective Communication with Pacing and Questioning
When communicating with clients, be aware of their verbal and non-verbal responses. Use open-ended questions to engage them to share more openly and pace the topics to build in depth, allowing the client to build up their comfort as the subject may become more complex.
2. Active Listening Through Quieting Our Inner Dialogue
Beyond facilitating a space for open and honest communication, it’s important to be sure you’re listening with skill. Active listening helps planners demonstrate empathy and responsivity to clients, which further encourages openness and transparency.
3. Cultural Humility to Improve Empathy and Connection
Planners should also be aware of implementing cultural humility whereby individuals not only learn about another’s culture but start with an examination of their own beliefs and cultural identities—it’s important not to make assumptions about any client. This should not only be applied when a client doesn’t share your cultural identity but with all clients.
In the end, by applying the concepts of financial psychology, financial professionals will be better equipped to navigate these complexities and ensure a personalized client experience and financial plan that addresses all aspects of their financial life.
1 eMoney Consumer Pulse Survey, August 2022, n=1,201
2 American Psychological Association Stress in America™ 2022 Pandemic Anniversary Survey, February 2022, n= 3,012
Author: Emily Koochel, Ph.D., AFC®, CFT-I™, Senior Financial Planning Ed Consultant Financial Planning, eMoney Advisor
Dr. Emily Koochel is an experienced financial professional, academic, and researcher. She currently serves as a leader for eMoney Advisor’s Financial Education and Wellness initiatives in her role as Senior Financial Planning Education Consultant. Prior to her career in Fintech, she served as an assistant professor, teaching courses in personal financial planning, and working in the financial planning field. Dr. Koochel’s Ph.D. in Applied Family Science and Master’s in Financial Planning provide a multidisciplinary lens to inform her work where she focuses on understanding the effect of financial behaviors and financial decision-making on personal and financial wellness. She serves as a subject matter expert in the field, reviewing and authoring peer-reviewed journal articles and book chapters, and contributing to public scholarship. Most notably, she served as a co-author for the CFP Board’s book, The Psychology of Financial Planning, and was awarded 2020 Outstanding Research Journal Article of the Year by the Association for Financial Counseling and Planning Education. She holds the Certified Financial Therapist-I™ designation and is an Accredited Financial Counselor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.