Helping clients achieve the lives they want, rather than focusing on their money, is the starting point for many advice firms, but it has not always been that way.
After the Retail Distribution Review, advisers stopped being overshadowed by products and began demonstrating the value they themselves brought to clients. Almost nine years later, more advisers are working as financial planners, building long-term relationships with clients rather than ‘prescribing’ products.
The advice profession is drawing increasingly on psychological insights. Earlier this year, the Certified Financial Planner Board of Standards decided that certified financial planners needed a basic understanding of how clients related to money psychologically. So it added ‘The psychology of financial planning’ to its list of topics as part of its certification requirements from March 2022.
People don’t make bad financial decisions because they are foolish; they do it because they are wired to make them
In the UK, financial planners can become certified financial planners only through the Chartered Institute for Securities & Investment (CISI). However, psychology appears to be playing a bigger part in the profession in general, not only among advisers who study with the CISI.
Where advisers gain an understanding of a client’s relationship with money, including their unconscious beliefs and biases, they can help that client make better decisions.
“Research has shown that our core beliefs around money are imprinted between birth and six years old, and that 90% of our decisions around money come from our unconscious beliefs,” says True Bearing senior associate director Mark Russel. “Taking time to understand how these unconscious beliefs may impact on the decisions our clients make can result in better outcomes.”
Vanguard UK estimates that advice can generate an extra 3% in net returns for investors. Most of this derives from behavioural coaching — helping clients to avoid mistakes — says the firm’s investment strategy analyst, Georgina Yarwood. She believes behavioural coaching will increase in importance as more firms automate as much of the advice process as possible.
Good advisers may be drawing on psychological insights day in, day out, without being aware of it.
“Good advisers are well skilled in psychology — that’s what makes them good,” says Kingswood chartered wealth planner Joe Howard.