Historically, financial planners have been trained to assist clients with objective financial matters. A formal educational foundation related to the psychological aspects of financial planning has been lacking.
The result is that many advisors overlook how the interaction of psychological considerations and hard-dollar deliberations can result in greater financial vulnerability among their clients.
However, as evidenced by the recent addition of the psychology of financial planning as a principal knowledge domain for certified financial planners, this is changing. So how might advisors seeking to address the psychological aspects of financial planning more intentionally get started?
A great step would be seeking to discover clients' beliefs about and attitudes toward money. This could be done by simply asking clients questions about how money affects their thoughts, feelings, behaviors and relationships — or by using a more formal assessment such as the Klontz Money Script Inventory-Revised tool.
Gathering this information can help advisors gain a deeper understanding of their clients and learn how to communicate with them more effectively, especially when it comes to identifying their financial vulnerabilities. For example, clients who believe that the primary purpose of money is to provide security may find spending money in retirement difficult — even if they objectively have little chance of encountering financial hardship.
An advisor who knows this can tailor communications and recommendations in ways that will help the client feel more secure, which may in turn make it easier for the client to spend money. Additionally, clients could benefit from gaining more awareness of their money beliefs and cognitive biases that might be undermining their progress toward reaching their financial goals.
Related Research
Those seeking to learn more about the psychological aspects of financial planning should consider reading the Certified Financial Planner Board of Standards' new book published by ALM, "The Psychology of Financial Planning."
This planning discussion is also informed by a new research paper, "Americans' financial resilience during the pandemic," by Robert Clark of the Poole College of Management at North Carolina State University and Olivia Mitchell of The Wharton School at the University of Pennsylvania.
