The CFP Board Center for Financial Planning’s brainy new book, Client Psychology, is filled with insights and ideas about why clients behave the way they do, and how fianancial advisors, using this research, can guide clients to satisfying and successful financial planning.
Nuggets range from the compelling, such as the finding that the number one cause of stress among Americans is worry over money, to the amusing, in the revelation that youthful financial advisors will be taken more seriously if they wear eyeglasses. Client psychology is defined as the perception, biases and behavior of a client.
The material, presented in 19 chapters, has been written by 23 academics and researchers from 14 universities and edited by Charles R. Chaffin, director of academic initiatives at the CFP Board Center for Financial Planning.
In this 312 page-book, there are 56 pages of references. Advisors who want more information on say, personality and financial behavior, or the role of mental accounting in household spending and investing decisions, can access the full-blown reports and papers from these references.
The successful advisor will master estate planning, taxation, investments and retirement planning, but go beyond the “transactional side of financial planning to focus on communication, counseling, and the innate and interpersonal psychological constructs associated with client decision-making and financial well being.’’
The book’s early chapters, which can be challenging, describe the theories that reveal a client’s attitude about financial planning, such as heuristics (mental shortcuts); loss aversion (losses are more painful than gains of equal value); intentional choice architecture (translating client information into critical financial decisions); and self- determination and self-efficacy in financial planning (how and why people take on tasks).
Out of the academic often comes easily understood findings such as “a female experimenter’s subtle touch on a person’s shoulder was associated with those people taking more financial risks. The comforting touch effect diminished when delivered via handshake and when delivered by a male.’’
The chapter on marriage and family therapy and financial therapy suggests that financial advisors must take up where marriage and family therapists leave off—research shows that MFT therapists avoid giving advice about money.
“Financial conflict is a leading cause of marital conflict and dissatisfaction; differences in values are the most common culprit of money arguments between partners. Financial practitioners can diffuse the tension by helping to find common ground.’’
Research provided here says that a husband having low income and money worries is a major cause of conflict in marriage. And, “the odds of having financial conflict for women is 11 times as likely when her husband views her as a spender.’’
Conflict is resolved when advisors help married clients understand each other’s motives and values, why for instance, one partner wants to save more for retirement, while the other wants to spend more on current needs.