Dealing with a client's hard financial data may mean discussing their most intense emotions about money.

    Dick Wagner once defined exterior finance as "financial information you can see and touch, that you can put in front of your face and see." He defined interior finance as "those aspects of our individual and social relationships with money, including the fact that money even exists." Financial planners historically have been well trained to deal with the exterior, but often ignore or simply don't notice the interior issues our clients have that often are the underlying causes for not making smart financial decisions.

Many financial planners I have met believe that the discovery process is limited to collecting quantitative financial data and uncovering their clients' goals. Their job is then to offer financial solutions and strategies to help their clients achieve these goals. However they often discover that clients, for reasons they don't understand, fail to implement these well-thought-out recommendations. Therefore, after all of the good work of their advisors, clients continue to spend too much, hoard for no good reason, refuse to purchase life insurance that they need, procrastinate on their estate planning, refuse to invest any of their money in equities and otherwise sabotage their financial health. To convince these clients that it is in their best interests to take action, many advisors produce more figures and quantitative evidence, often to no avail. The problem is that these advisors are attempting, in many cases, to solve interior issues with exterior solutions. It simply doesn't work, and more discovery is needed.

I'm sure we all agree that money is an emotional issue for virtually all people. If that is the case, how can we ignore these issues if we are to provide competent financial advice that people actually implement?  Of course, I am not suggesting that we become amateur psychologists and cross the line between discovering issues and offering therapy. But it is the experience in our firm that when clients understand why they are acting as they are, they often change their behavior. Just as doctors need to know their patients' medical history, it is imperative that financial planners understand their clients' financial history. I do not necessarily mean their investment history, although that may be extremely important in understanding why our clients are reluctant to follow our advice. A poor experience in the market may cause some of our clients to avoid equities. But that is an issue that is usually discovered by planners. The following examples from among our actual clients, on the other hand, would not have been discovered, in my opinion, unless we asked questions that you will not find in your typical discovery questionnaire.

When Aaron first came to see us, he was in his early seventies, and 100% of his money was invested in fixed income. He told us that he had never invested any money in the stock market and wanted us to limit his investment options to high-quality bonds. It was much too early in the process for us to respond one way or the other about that, but it was obvious from the preliminary information that this strategy would virtually assure him that he would run out of money if he lived to be 90 or older. In our discovery process, we ask clients about their histories and early money experiences. One of these questions is, "When have you experienced pain around money?" When we asked Aaron this question, he told us about an incident that occurred when he was 9 years old. He was at a carnival with his parents and asked his mother for money to buy something. She gave him one dollar and told him that he could spend 20 cents. Instead, he spent 40 cents and she was extremely angry that he "wasted so much money." To teach him a lesson, she confined him to his room for one full week. Now, we understand that for many people this could have been simply the result of disobeying a parent, but that's not what it was for Aaron. The fact that he remembered this incident so vividly after 65 years revealed to us-and to himself-that this was a significant event in his life. My follow-up question to him was, "How has that affected the decisions you have made about money?" He said he had never given it much thought, but that since I had asked him, the lesson he learned from his mother was that every penny was very important and should not be spent frivolously. One way he interpreted that was to refuse to place any of his money in jeopardy. To him, stock market fluctuations would have done just that, and therefore all of his money was in bonds.

Of course, there were other decisions he made in his lifetime that were affected by this incident, but the relevant one here was that he was on a collision course unless he changed his investment habits. At a later meeting, we demonstrated with our projections that he had a high probability of running out of money unless he invested in equities. Understanding the origin of his reluctance to invest in anything but bonds helped him to make the decision to invest 50% of his money in equities, which significantly improved his chances for success. No doubt, over the years brokers and other planners tried to convince him to change his portfolio allocation but none were successful. This was what appeared to be an exterior problem (not investing in stocks), but was driven by an interior issue, and asking the right questions uncovered it.

Helen and Larry were successful executives when they first came to see us. When we asked about her history, Helen revealed that her father was a minister of a church in an upper-class neighborhood, and they lived among people who were considerably wealthier than they were. She recalls one neighbor who seemed to be very unhappy. She always seemed to be buying more things to satisfy herself, but it didn't help. The more she bought, the more she felt the need to buy. In addition, like addicts, these quick fixes did not last long and the cycle of buying would start again. Helen came away from that experience with the notion that money not only cannot buy happiness, but having a lot of it may actually help to elude it! Her neighbor seemed so obsessed with spending her money for gratification that she ignored the things in life that really mattered.

As an adult, Helen managed to reach a high-level position with a large public company and was on her way to accumulating wealth. Something was missing in her life, she believed, but did not know what it was. However, when she recounted her childhood experiences, she realized that her life seemed to be devoted to making money and that she needed to drastically change that life. Her job provided her with no rewards other than the money she earned. She told us she always knew that seeking money could become addictive and get in the way of a satisfying life, but she had done nothing about changing the pattern. She decided that day that things would change. We worked together on a plan to do that, and today, she and her husband are living in Arizona. She is working as a massage therapist and he has become a partner in a golf farm. During a recent visit, she told me that she has never been happier. It took the recollection of her childhood experiences to help her realize that her life needed to take a different direction.

These are just two examples of how interior discovery can lead our clients to make the decisions that are truly important in their lives. In order for that to happen, we need to ask questions that are less traditional than the quantitative textbooks tell us to ask.

Some of the things we say to discover interior issues are:
Tell me about your family when you were growing up.
What messages about money did you receive from your mother? Your father?
How do those messages affect you today?
What is your first memory of money? 
What was learned from that experience?
Describe a painful memory about money.
Describe a joyful memory about money.
What are your major beliefs about money?

As Galileo wrote, "All truths are easy to understand once they are discovered; the point is to discover them." In order to help our clients make smart financial decisions, we need to understand their interior, as well as their exterior, issue. Asking the right questions is a good place to start.

Roy Diliberto is chairman and founder of RTD Financial Advisors Inc. in Philadelphia.