First there was financial services. Then wealth management. Then FinTech. Then BeFi (behavioral finance).

Now it’s time for FinPsych—tapping into the many fascinating and alluring avenues of human psychology to better understand what makes clients tick, learn what they want from a financial planning relationship, and discover how you as their wealth advisor, can help them make their dreams come true.

It used to be that most financial advisors were successful because they were financially savvy and had mastered math literacy—they knew how to use math to make money for their clients. Today, the role is evolving to financial and life coaching and more. Soft skills of empathy and emotional intelligence may prove key to growing an advisor’s book, keep clients engaged, and earning the right to work with their client’s next generation of family members.

According to Steve Gresham, managing director of The Execution Project and Next Chapter (which partners with Financial Advisor magazine), savvy advisors are boosting their financial psychology chops by learning new ways to incorporate emotional intelligence and empathy into client conversations “The best advisors have learned to listen carefully, ask the right questions, and realize the emotional coaching role they can play for each client—one that goes far beyond financial analysis, portfolio construction and diversification strategies.”

Financial Psychology Becomes A Required Topic
The industry has jumped on the bandwagon to get more advisors trained on key elements of financial psychology. Earlier this year, the Certified Financial Planner Board of Standards (CFP Board) added a new category titled “Psychology of Financial Planning” to the list of topics that prospective certified financial planner certificants will need to know to pass the CFP exam.

The updated topic will require knowledge of client and planner attitudes, values, and biases; behavioral finance; sources of money conflict; principles of counseling; general principles of effective communication; and crisis events with severe consequences It will be integrated into the education requirements for CFP certification and assessed on the CFP exam starting in March 2022.

Kevin Ruth, founder of financial literacy website Finance411, creator of the Give-Get financial literacy program, and chair, CFP Board's Standards Resource Commission, believes this decision will educate future financial planners about the various biases their clients they may encounter on a daily basis—and know how to handle them.

“Certified financial planners do an excellent job of showing clients how their numbers work in their clients’ financial plans.  But when clients do not implement the financial advice, CFPs are left on their own to try to figure out why,” says Ruth. “By adding the ‘Psychology of Financial Planning’ to the Principal Knowledge topics, the CFP Board is arming future CFPs with the knowledge for how to deal with the important underlying emotional ramifications of their client’s financial decisions.”

A Family Affair
According to Kimberly Beck, vice president at iPipeline, advisor training is quickly evolving to incorporate empathy and emotional intelligence. “Financial training is shifting dramatically these days. When I started in this business, it was all about product—knowing how each financial product worked and how it could fit into a client’s portfolio. Today, everything is centered around understanding a client’s needs, and that takes a strong grasp of emotional intelligence and empathy concepts and as well as how to put theories into action,” says Beck.

Over the years of developing training programs for thousands of advisors, Beck has focused efforts on helping them better understand the holistic needs of their clients by getting advisors to ask more values-based questions based on their life stage like:

• What changes to your life have transpired since we last met?
• In saving for your children’s education, do you want to your children to have skin in the game, or should you try to fund all of their college expenses?
• How do you feel about accepting a new job opportunity?
• How have those changes shifted your financial goals?
• What do you want to do in retirement?  How much do you want to travel?  Do you plan to downsize your home?
• What upcoming life transitions keep you up at night?

One of the biggest opportunities for advisors is to focus on current clients’ families, the “NextGen.” “We’re evolving into a space where we believe the client is the entire family, not just the primary income earner. So, it’s important to know how to employ financial education for the extended family,” she explains. “That means really getting to know the spouse/partner and engaging with their children. One simple start is for the advisor to send a birthday card to a client’s kids. That’s what my own advisor does and it’s an effective way to show you care, but also to help introduce yourself to the extend family.”

According to Beck, empathy is a fantastic and important skill to master, but it takes time. “Hopefully, tech solutions for advisors will continue to evolve to help automate more of their daily routine tasks, so they can free up time to collaborate with clients on a deeper level,” advises Beck.

A 20-year veteran of advisor training program development, Beck is a fan of new online tools, but sees immense value in practical, low-tech tools on which advisors have been trained. “A good example is the Life Priorities Discovery program from Cannon Financial Institute. It’s simple and easy. An advisor hands a stack of index cards to a couple during an in-person meeting. You ask them to pick their top three priorities for their life, then select the bottom three. It’s ideal to get both members of a couple to do with together, in front of you. The key is to get spouses/partners talking. You sit back and listen. Then you look for the common themes, as well as the disconnect—understanding those dynamics can help drive the client conversation forward,” explains Beck.

It Takes A Village And A Team Approach
According to Evamarie Schoenborn, president and CEO of Northwestern Mutual Wealth Management Company in Milwaukee, it takes a village to service clients in wealth management these days. “Teams are incredibly important to meeting and exceeding client expectations across the spectrum, but particularly HNW clients,” says Schoenborn. “Teams are best positioned to provide holistic advice and a high standard of client care for households with sophisticated needs.”

She adds, “When they function at their best, teams operate not only to support the advisor, but to demonstrate to the client all the firm can do to assist them. Great teams are aligned in serving clients with empathy and emotional intelligence. They understand how to listen deeply, and they dig deep to understand each client’s unique background and goals.”

“Advisors frequently guide clients through trying, transitional events in their lives, like the death of a spouse,” said Schoenborn. “These moments of truth are when the reality of our business really comes alive. When each team member is trained and prepared to navigate clients through the specific steps of difficult life events, the family feels tremendous support. Our advisors really care about showing up for their clients in that way.”

“We strive for a deep understanding of client needs, wants, and dreams,” added Schoenborn. “When everyone on a team understands this and is working in concert toward successful client outcomes—that’s what winning looks like,” she explains.

The Emergence Of FinPsych
Sarah Stanley Fallaw, PhD, founder of DataPoints, Inc. in Marietta, Ga., has used her background as an industrial psychologist and the research of her late father, Dr. Thomas J. Stanley, author of The Millionaire Next Door, to develop a series of assessments that advisors can use with clients to better understand their motivations, hopes and fears.

Her research has been centered on helping advisors better understand how their client feel about financial management, where potential money-related disagreements exist between couples, and how deep-seated financial attitudes can impact decision-making—and then, determining the series of questions that should advisors ask to facilitate these important discussions.

According to Fallaw, the relatively new field has FinPsych has emerged because advisors recognize the need to understand client money mindset. FinPsych tools and assessments are designed to help advisors save time and money. “Our online assessments speed up the process of helping advisors getting to know clients—their traits, beliefs, and money personalities. For example, there are clients that want and expect a phone call during times of major market volatility—and those that don’t. An assessment can help you develop that priority list of clients to call,” says Fallaw.

According to Fallaw, some financial advisors are using the 10-minute DataPoints Financial Perspectives assessment during the onboarding process with couples to gain a quick, yet in-depth understanding of client financial attitudes in areas such as investing, budgeting and spending. Advisors can generate reports that can help guide client conversations and result in a positive and deeply captivating client experience. “With our couples comparison report, advisors will be able to communicate with each household member in a way that respects their unique perspective, thereby engaging both members of the household in the process,” explains Fallaw.

Fallaw’s work led to the creation of the building wealth assessment (see graphic), designed to be used with clients who are in the accumulation phase of life. Fallaw states that advisors use this assessment to uncover clients’ money-related experiences and identify areas to coach clients and improve their financial wellness. “Assessments can uncover client personality quickly and provide a detailed guide to communicate with clients in a way that demonstrates empathy and understanding of the client’s unique money-related experiences,” says Fallaw.

Asking Better Questions To Drive To The Next Best Action
Over the years Heather Kelly, senior vice president of Allianz Life, has seen her share of client journeys—financial product roadmaps that may be employed throughout the lifetime of a client. “Fortunately, our industry has evolved well past the days of advisors as product-focused individuals. The focus has shifted from the benefits of a singular product to recommendations working in concert to achieve objectives. Today, advisors ask more meaningful and profound questions to elicit better insights from their clients,” says Kelly.

On a daily basis, advisors are tackling tough scenarios, says Kelly. “For example, many clients are dealing with caring for elder parents or loved ones. They ask their advisor to help develop strategies and elder care options—and how to pay for them. It’s not just asking a spouse if they’re OK with Mom coming to live with us, it’s about having tough tradeoff conversations, giving both members of the couple/partnership a voice in making the right financial and emotional decisions that everyone can be comfortable with. That’s not easy to do. It takes training, heart and some wisdom, too,” says Kelly.

The good news, according to Kelly, is that as advisor team models become more prevalent, emotional intelligence skills combined with technology can help propel the “next best action”—that’s the preferred action that clients are encouraged to take. “Even in our world of annuities and insurance, we’re starting to see gamification as a tool helping clients improve financial literacy, learn about themselves, and spot new opportunities to improve their overall financial wellness. This is an exciting development, and it all starts with asking better questions,” adds Kelly.

Beyond gamification, online assessments, and digital tools, the industry is ripe for some new blood. “We have many para-planners or junior advisors waiting in the wings to take on their own book. I have seen senior advisors do an impeccable job of mentoring the next generation of advisors, but they also need to continue to evolve,” says Kelly.

“Studies have shown that the typical financial advisor is a 57-year-old white male. That needs to change,” says Kelly. “They need diversity, equity and inclusion (DEI) and appropriate training (and many have already embraced and done so…). Advisors need to be able relate to things like blended families, gay marriage, other aspects of modern families, and cultural aspects to best serve their clients.”

She adds, “Advisors are aging, and many will be retiring over the next five to10 years. Wealth management firms need to continue to deliberately recruit and groom advisors from varied backgrounds and equip them with the necessary education. This is particularly important to instill confidence in the next generation of wealth. We are on the verge of significant wealth transfer; people want to work with and trust someone who is relatable to them—someone who looks like them.”

Seeking Support From The Advisor Community
Over the next year, Next Chapter*, an industry wide group of leaders and innovators from the financial services community, seeks ways to incorporate financial literacy, emotional intelligence, and empathy trainings, tools, and resources into everyday activities for advisors to better serve their clients.

To build alignment across the industry, Next Chapter seeks use cases for:

Best Practices Of Communications
• Is there a rating of communication effectiveness by advisors? Results?
• What do leaders do?

Financial Literacy
• Examples of advisors/firms delivering financial literacy efforts
• Should the industry create and endorse a standard of financial literacy, outlining basic issues clients should know?
• Should the industry supply clients with a glossary or other basic education about important topics of retirement planning?

Empathy And Emotional Intelligence
• Best practices use cases for how E&EI are included in advisor training?
• What digital tools can provide E&EI and what topics should that capability address?
• There are many efforts that support better engagement with women and other family members—can we review and promote capabilities as more standard industry practice?

If you or others at your advisory firm can provide details on any of the above scenarios based on your work with existing clients, please contact Steve Gresham at [email protected].

David Conti is a N.H.-based writer, editor and content marketing consultant. He was an editor at Fidelity Investments and now writes about personal finance, retirement, aging and wealth for several national publications. Contact him on LinkedIn.

*Working for the greater good, a group of more than 30 industry leaders built Next Chapter—a think tank/take action team focused on retirement. It’s sponsored by the Execution Project, Financial Advisor and the Money Management Institute, and we are working on behalf of the MMI’s 180+ member companies and FA’s 200,000+ advisors.