Financial advisors need practical experience in using behavioral techniques to help their clients deal with their finances, says one of the founders of the Financial Psychology Institute.
There has been a lot of talk about behavioral finance in recent years, notes Brad Klontz, who along with his father, Ted Klontz, founded the institute.
“The problem is that most behavioral finance research is done by ‘ivory tower’ types, who have never worked with financial advisors or clients,” says Klontz. “There is a huge divide between advisors and the researchers, who usually don’t work directly with advisors or clients.”
Klontz does both. He also is the author of several books, including "Mind over Money," and is an associate professor at Kansas State University. He was recently appointed by Occidental Asset Management to develop the RIA’s investment strategy focusing on financial psychology.
Klontz hopes the Institute will help close the gap between research and financial advice. The Institute was founded in January and a two-year course of study will lead to a certificate as a financial behavioral specialist. The course includes a three-day, in-person workshop that shows advisors how to implement the theories they are learning with real clients. It also uses virtual seminars and self-study components.
“We are drawing on 100 years of psychology and marrying it with behavioral financial research, which is in its infancy,” says Klontz, who is a psychologist by training and also a certified financial planner. “I was working with financial planners to help them work with clients, so I decided to become one myself.”
One of the things Klontz’s research has shown is that the way an advisor’s office is arranged can affect how the client interacts with the advisor. Make the office look more like a living room, without a desk between the advisor and the client, which makes clients more comfortable and more forthcoming, he says. “And don’t have a ticker tape running across a screen on the wall,” he advises.
He also teaches techniques for dealing with resistant clients. He tells advisors not to confront clients or tell them they need to make a budget or take other action. Instead, ask them why they do not feel a budget is important. That leads the client to defend the action the advisor is trying to get him to take, he says.
Klontz says he is always looking for new research topics, based on the advisors and clients he works with. For instance, he wants to look into the dynamics of a couple when the woman makes substantially more than the man. He also wants to explore how people’s attitudes toward ‘the 1 percent’ of the wealthy affects their finances.
“The advisors who come to the Financial Psychology Institute are the ones who realize the client is more complicated than just a portfolio. They want to improve their overall approach to their own finances and toward their clients,” Klontz says.