Financial advisors feel helpless in the face of fierce resistance from clients to rein in their spending, stop living beyond their means and salt away more of their paychecks. Even worse, the industry's less discerning practitioners are enabling reckless behavior for fear of losing business.

A huge part of the problem is psychological. Look no further than the emerging field of behavioral finance to explain why average Americans of all ages and walks of life feel pressure to keep up with their neighbor. The unfortunate result, of course, is that consumers max out their credit cards, tap equity lines of credit or consolidate loans in pursuit of the American Dream, but in the process, fall victim to over-consumption and under-saving.

Unscrupulous lenders are exploiting consumers with interest-only loans and variable-rate home buying without a down payment-the latter labeled in one recent headline as a car-dealer tactic on the new-home lot. Another gimmick ties a home equity loan to life insurance with the promise of zero premiums, albeit no escape from a lien on equity no matter how it's sold to an unsuspecting public.

There's also the issue of determining whether it's prudent for people to consolidate their debt. Many online calculators use the current monthly payment figure as the basis for comparison against monthly payments after debt consolidation, which is erroneous since payments in subsequent periods aren't compared. This flawed approach is enough to convince people they should consolidate their loans, and in many cases, it justifies a resumption of conspicuous consumption-leading to a vicious cycle.

A Collaborative Approach

Before an advisor even gets through a client's front door or a client gets through the advisor's door, chances are that the person they're meeting with might require the services of a psychotherapist and/or credit counselor (or require such a recommendation) to examine the root causes of their propensity for reckless spending and suggest a need for financial discipline.

There must be a clear understanding of the difference between needs (i.e., retiring with peace of mind) and desires (i.e., living the high life), and a willingness to change. It means not eating out five times a week or financing a $75,000 kitchen makeover, cutting back on entertainment, taking public transportation to work or making more than the minimum payment on credit card balances. It means not rushing out to buy a house or moving into a more affordable home. It means finding a local college for children to attend and spare the added expense of housing them in a dormitory. Only then can people earmark increasing amounts from each paycheck to build a comfortable savings cushion.

What's needed is a collaborative approach, since financial advisors cannot be the sole catalyst for change. The media needs to do much more reporting on the dangers of debt, politicians need to make difficult choices and business leaders need to be more vigilant about adopting ethical practices when it comes to lending, advertising or marketing products and services that feed the vicious cycle of indebtedness.

Astute financial advisors can take on a real leadership role with regard to helping clients avoid or dig out of debt, but the ones who have the intestinal fortitude tend to have the most affluent clients. So the question becomes, do they have the courage to deliver tough love to their working- or middle-class clients and prospects? For people to have faith in their advisor, they need to trust their expertise as a financial health practitioner and believe in the power of a diversified investment portfolio. But they also need to be repeatedly told to stick with their long-term financial plan whenever there's a downturn in financial markets and not be swayed by fear or the lure of short-term gain.

Advisors who are willing to recognize and treat the symptoms of irrational decision-making, and educate their clients on the follies of making emotion-based decisions, will be able to distinguish themselves in a competitive market. They need to understand investor psychology, as well as identify behavioral biases and offer counsel about the perils and consequences of irrational decisions. This will enhance the results of their long-term planning.

Rethinking The Mission

At the end of the day, it's not just a matter of offering financial planning. It's as much about life planning as helping get a client's financial house in order. Just ask George Kinder, who describes the movement he created as "the human side of financial planning" and holds workshops that teach advisors client-relationship skills. But an even better objective would be to offer financial health planning as part of a more holistic, and arguably, effective approach.

The best advisors know how to steer their clients away from unscrupulous lending practices, resist the urge to over-consume and learn financial discipline, but unfortunately they're a rare breed. Unless the status quo changes, financial planning runs the risk of irrelevance. How can people possibly expect to amass adequate savings for a home, child's education and/or retirement if they can't first dig out of debt? The only possible result will be legions of unhappy clients.

One way to help combat the nation's difficulty in dealing with debt would be through the creation of a quasi-governmental, nonprofit organization whose educational mission is to better understand the basic issues surrounding the need to borrow money. But perhaps the time has come for the some 200 educational institutions that teach financial planning to pool their resources in hopes of becoming a credible watchdog of the nation's financial health.

Lawmakers increasingly have come to the realization that financial literacy needs to become a higher priority. Advisors should never forget that sound financial health is a necessary condition for good physical and mental health, especially since most married couples argue about money more than anything else, and financial distress is a leading cause of depression. In the future, advisors could serve as financial health practitioners in partnership with counselors, behavioralists and psychologists. The very health of financial planning just might depend upon it. 

Somnath Basu, Ph.D., is program director of the California Institute of Finance in the School of Business at California Lutheran University, where he's also a professor of finance. He can be reached at (805) 493-3980 or