The New Financial Planning Process That Saves Time, Empowers Clients

That gets everybody swimming in the same direction and feeling empowered and connected.

What sorts of mottos?

Sometimes they're about, "This is what the money is for," or, "This is how we want the money to be [used] in the world."

It creates a nice touchstone for any financial decision for a family member to come back and say, "Here's a representation of the family motto."

In the new CFP Board book, "The Psychology of Financial Planning," to which you're a contributing writer, you write about when money is used to manipulate, among other topics. Please talk about financial manipulation.

It's pretty striking that in an estimated 98% of domestic physical violence situations, there was usually an earlier sign where money was used in an abusive and manipulative way.

Sometimes it's demanding that one person quit their job, for example.

What about money manipulation where there's no violence?

There are situations where parents may say to their kids, "If you come over, we'll go to Disneyland." That's manipulation: They're trying to buy attention and love.

Often parents go along with their adult children's manipulation to give them money if, say, they're unemployed. Your thoughts?

It's very difficult for a lot of people to turn that off because the parents or the kids will justify it. The parents think that if they stop doing it, maybe the love will stop too.

So it's not [so much] that they care about the money — they care about the emotional relationships and the fallout.

Please discuss financial infidelity, which you also write about in the CFP Board book.

There are many shades of financial infidelity, and the [incidence] statistics range from 50% to 90%.

It can be lying about a purchase or rounding down, like, "My husband thinks my new sweater was on sale. I didn't tell him it was a $2,000 sweater marked down to $1,000."

Why isn't the spouse open and truthful?

It goes back to what people think and feel about their money, depending on how they grew up and what they were taught.

A lot of rules that we act on when it comes to our finances are things we learned quite young — some people say, around 7.

What you know as an adult is totally different from what you knew [or thought] when you were 7. Yet we're acting on rules that were set up when we were that age.

So it tends to be very emotionally laden.

What else can contribute to financial infidelity?

Money can be a taboo [subject]. People aren't quite sure how to talk about it. Many times we don't have good examples of how to talk about finances and have many unspoken rules about it.

This can make the whole process of discussing finances quite difficult.

In the CFP book, you also write about advisors "identifying and responding to clients' values and goals."

Should advisors ever suggest that a client go in a different direction when their values prompt them to invest in, say, a particular sector?

For example, the client would like to put money into an ESG fund, but the advisor wants to recommend something else with a higher return.

It's not the advisor's job to challenge someone's values. The client might say, "I'm fine with an 8% return over a 12% return because I know my money is going towards something I believe in."

Not everything can be solved with a time value of money calculation. While that and a Monte Carlo [Simulation] can be very useful and efficient tools, they don't speak to the client when they're trying to solve something else.

What's one main reason to understand clients' goals and values?

In order to be on the same side as the client.

It's: "I'm hearing you say that making the world a better place through this ESG fund is what's most important to you, and one way to do that is to invest in this fund."

It's not: "This is wrong because there's a more efficient way to [invest]."

Please elaborate.

[You need to] ask the client what they think: "Let's explore this value a little more and see if there are other ways that would maybe allow your portfolio to have gains the best way it can but also allow you to serve this particular value."

A lot of times clients are doing things with their heart. We have to take that into account and use a more collaborative approach with three or four options, all of them speaking to [the particular] client value.

Using psychology and having empathy can clearly help advisors relate to clients. But many advisors think they don't need to develop "soft skills," that they need focus only on the technical. Thoughts?

Empathy is huge, and I think that advisors very much want to do that work.

In the past, CFP Board education was purely [about the] technical [side]. Now it has aspects of client psychology and the psychology of financial planning.

You can be as technically skilled as you can be — and you should be — but at the end of the day, it doesn't matter how technically brilliant your financial plan is. If you can't get the client to come on board, they're not going to do any of it.

If you can't understand what's really making your client tick, it will just make your job harder. You're constantly going to run into clients that won't do what they said they would.

(Pictured: Meghaan Lurtz, finance professor at Kansas State University and senior research associate with Kitces.com)