People today are facing great economic stress as the world tries to recover from the financial collapse of 2008. Global instability and economic volatility remain on people’s minds. This is on top of the day-to-day worries that every individual and family faces.
It’s no surprise that recent studies have marked a sharp increase in the number of people who feel unprepared for retirement; who must provide financial support to adult children; and who feel depressed, lonely and dissatisfied with their financial advisors.
These dynamics create an environment that encourages bad choices.
Wrong decisions can also be self-propagating. When people make decisions under stress, the outcomes are likely to be negative, creating more stress; the more stress one creates, the more bad decisions result.
Of course, nobody is immune from bad decisions. Daniel Kahneman and Amos Tversky, two psychology professors who won the Nobel prize in economics, have shown in repeated studies that people rely on biases and heuristics—cognitive shortcuts—to make decisions, usually resulting in poor outcomes. Unrelated studies show that the smarter one is, the more likely one is to make a biased—or poor—decision.
This all indicates that people need financial advisors more than ever.
Wealthy clients need to plan and invest appropriately to maintain or achieve a desired lifestyle and to fulfill their greatest hopes while protecting against their greatest fears. Advisors should play a role in helping clients create a more fulfilling life. In his book Wealth & Happiness, David Geller writes, “Our culture has willingly exchanged happiness for pleasure; they are not the same.” This is evident when we consider divorce rates have doubled in 50 years. More people are depressed than ever before, and human connections are being edged out by technological communications.
As financial advisors, we must think of ourselves as coaches, creating myriad more ways in which we can engage and guide our clients.
The dynamic is profound. The change in identifier conjures up thoughts of the most positive aspects of what a coach does. A coach inspires us, is on our side, is trustworthy and uses a holistic approach—without making us feel we’re being given a sales pitch—to help us achieve our goals. A good coach understands that psychology is as important as assets and liabilities. The psychology of how we tend to make decisions about our assets and liabilities is as important as the assets and liabilities themselves, because the latter is dependent upon the former. Above all, we never question a coach’s decisions.
Unfortunately, most people cannot explain why advisors do what they do—only what they do. If every advisor is perceived to do the same thing, then an entire industry has been commoditized. So where’s the value? By changing the identification from financial advisor to coach, we free ourselves from the preconceived notions of what we do; we are given great latitude to pursue sensitive but pertinent subjects. To quote author Simon Sinek, “The destination, the Why, must remain fixed [to achieve fulfillment]. It is the route, how we get there, that is flexible.”
An inspired financial coach must pursue a comprehensive process for engaging clients in dynamic conversation that helps them identify, articulate and prioritize their most meaningful goals. The extent to which you can institutionalize the process, which my firm has done through an exercise called “Honest Conversations,” will increase consistency and effectiveness for everyone involved. A set process can be valuable for initiating and prompting conversation, but its real value is in dealing with the emotional and psychological issues that arise when engaging in such a dialogue.
As financial coaches, our primary objective is to help clients achieve fulfillment through the prism of financial planning. To do so, we must help our clients articulate what makes them unique. After all, everyone has various attributes that make them who they are. How can people leverage those attributes to positively impact their lives? How can they leverage their attributes to positively impact others? Engaging with clients in a constructive and dedicated manner about these types of questions can change their lives forever.
It’s also important to understand the types of roadblocks clients face in achieving their goals. At United Capital, we’ve identified 41 metrics—we refer to them as “Wealth Empowerment Challenges”—that include the financial, legal, psychological, philanthropic and business matters that can undermine long-term progress.
I believe my most important responsibilities as a financial coach are to help my clients enrich their lives, enhance the lives of those they love and leave a legacy that’s consistent with their values. And like coaches—who don’t just prepare their players but also support and direct them during the heat of competition—we must have an adaptable strategy for when our clients’ circumstances, goals and priorities change.
Mark Sachs, CFP, is a senior wealth advisor in the Boca Raton, Fla., office of United Capital Private Wealth Counseling. More information is available at www.unitedcpfl.com.
