Ask Preston D. Cherry — a CFP financial advisor, university professor, holder of a doctorate and master’s degree and the president of the Financial Therapy Association — about the pioneers of planning and psychology, and he’ll rattle off a dozen or more names spanning decades.
He brings up academic programs at Golden Gate University, Kansas State University, Texas Tech University and the University of Georgia. He speaks of growing movements and outright fields of the profession, such as
Yet it persists among some clients and prospective financial services professionals. The
In contrast with the popular image of financial advisors as investment experts with charts and graphs of stock performance, the principles relate to “advancing the human condition” and “how past relationships and experiences with money may present barriers to our present and future progress with our life and money aspirations,” said Cherry, the founder of Green Bay, Wisconsin-based
“You're seeing financial therapy and the psychology of money be so important everywhere,” Cherry said. “We're opening up beyond academia. It’s a critical pivot point right now because we're reaching into the mental health aspect, marriage. We're reaching across thought processes, professions. We're really pushing toward opening up the mindset.”
CFPs in psychology
The CFP Board took a major step in that direction by
As for an official definition of the disparate fields in the profession applicable to the general topic of the “psychology of financial planning,” the organization overseeing nearly 93,000 CFPs nationwide describes it as “identifying and responding to attitudes, behaviors and situations that impact decision-making, the client-planner relationship and the client’s financial well-being.”
At an estimated 150 basis points in possible added value to clients, behavioral coaching amounts to the largest individual area of gain for clients in the Vanguard
“We're in the age where there's so much information available to be a self-directed investor, much different than it was 50 years ago to get a newspaper and charts,” she said. “Gone are those days. And I think this is an important conversation to show how the profession has evolved from us being stock pickers to us now helping our clients with their personal and financial goals. The psychology of advice or behavioral finance is an important part of that.”
More frequent and constant applications
The CFP Board’s move has led to a “significant” bump in web traffic to articles about financial psychology, interest in continuing education sessions and firms seeking client assessments for their practices, according to Sarah Stanley Fallaw, the author of “
DataPoints “focuses on the measurement side of financial psychology: our platform measures clients' investing- and money-related personalities, attitudes and beliefs,” Fallaw said in an email. “Most advisors use our tests for the personalized reports we provide for their clients. These reports provide insights into the client's personality along with tips, recommendations and interview questions to walk through different aspects of financial psychology with the client.”
Advisors see the relevance of the burgeoning psychological research and metrics for their practices. Autumn Campbell, a lead planner with
For Akeiva Ellis, a
“It doesn’t matter how wise or prudent our advice or recommendations are if the client won’t implement them,” Ellis said. “A frequent scenario is when clients panic during a market downturn, tempted to sell their entire investment portfolio. Another might be issues of overspending fueled by a range of underlying motives, such as wealth-related guilt that leads to being overly charitable or generous with friends and family. We, as planners, need to know how to guide our clients through these situations and to the best course of action for them.”
In an interview at the Tulsa, Oklahoma-based office of Mariner Wealth Advisors, senior wealth advisor
“If you're ignoring the psychology of a client or a prospect, you're not doing your job very well because it's there, even if they're trying to just talk numbers,” she said. “A lot of it is reading between the lines of, what are they really asking me, what are they really worried about? They're stuck on a performance number, but people in general are faced every day with people telling them what to be afraid of. And it's our job as advisors to help them see, in most cases, that it's going to be OK. And ultimately, that's the question they're asking when they're stuck on a performance number or a tax situation or — the markets today is a good example — is, are we going to be OK?”
The mental side of money often comes into play with business owners or executives who derive a significant portion of their wealth from one company’s stock or value, Cooper said.
“From the outside, we all see that and say, ‘well, that's a lot of eggs in one basket.’ From their standpoint, many times they actually view their ownership as low risk, because it's what they know best, it's what they can control,” he said. “They can't control what some other industry is doing or some other stock is doing or some other type of investment, but they know their business the best. And they actually view it as one of the least risky parts of their overall net worth.”
Popular areas of study
Advisors eager to explore the expanding research as part of their continuing education can tap into an array of books, academic journals, training or coaching sessions and podcasts exploring the links between planning and psychology.
Cristina Livadary, the founder of Marina Del Ray, California-based Mana Financial Life Design, recommends a book that she says made her future career path suddenly clear when she was working as a mutual fund wholesaler: “
The practice, run by Livadary and her business partner, has reached 100 clients since starting at zero only four years ago, she said in an email. Before discussing “any financial topics, we work with clients to unveil their why,” Livadary said.
“These days, mental health is being discussed in public forums in a way that would have been unheard of 10 years ago,” she said. “From star athletes, to front line workers, to overworked employees at tech companies, we’re beginning to honor the massive role our mind plays in our daily lives. Financial confidence is a core piece of mental health. So many of the planners I meet are working with people who want to build wealth but recognize that it’s impossible to be wealthy if they haven’t addressed the psychological aspect of their money. Money stories run deep and can affect a person’s ability to earn, save, spend and invest for decades.”
Other organizations are springing up and attracting more professionals as well. The Financial Therapy Association launched in 2008 as a group of planners, financial counselors, coaches, psychologists, marriage and family therapists, social workers, psychotherapists and researchers,
“In effect, practitioners have been working in a vacuum, with only the occasional opportunity to share successes and failures with others, or to work with researchers to truly determine the efficacy of a particular counseling treatment. The FTA was developed to meet this need,” it said.
Cherry, the organization’s president, suggests advisors keep learning “how to improve those client or human connection or communication skills to enhance the conversations that you have with the people that you're serving,” he said.
“You have set up an environment that welcomes me, asks me the right questions to better understand who I am, my values, my experiences, my attitudes,” Cherry said. “Those shared stories help inform what the aspirations are. And then it tells us what we can do with the mechanics of the money, which has better outcomes at the end of the day.”
I would hope that I use it in every single client meeting.
Some of the available texts
Much of the burgeoning available research sprouted out of a series of 1994 sessions hosted by Kinder and the late Dick Wagner at the retreat of one of the Financial Planning Association’s predecessor associations, the Institute of Certified Financial Planners. The pair “asked what we felt as we watched them tear up a $20 bill — were they destroying something of emotional or spiritual value, or was it ‘just money’?” a veteran advisor who was present at it and later meetings of what became known as
Contemporaries sometimes referred to Wagner, who also penned an influential 1990 article in the Journal of Financial Planning titled “
“Financial planning is the ultimate liberal arts profession. We are not only required to know a lot about a lot but, eventually, we must make sense of the mix as it relates to the individual relying upon our judgment and advice,” Wagner wrote in his book. “This skill and wisdom matrix necessarily includes psychology, spirituality and a full understanding of the nature and implications of being human and of lives well lived. This is not competing with the therapist but, rather, knowing enough of the therapist’s work and tool kit that we both avoid harm and understand how we might incorporate the therapist into our work at appropriate moments.”
Such a broad range necessarily incorporates thinking about factors like childhood trauma often connected to the painful racial history of America and the historical exclusion of certain groups or outright violence targeting them. In her 2020 book “
“The most frustrating thing is that folks don’t discuss the trauma around money, particularly in the finance community. We never talk about financial stress and its physical effects on our mental health,” George writes. “There is always ‘Lil Trauma’ following us wherever we go. Sometimes we remain so unaware of the injury that we don’t recognize it because it’s normalized. So, even simple things like grocery shopping can bring up a trauma because your parents said that they didn’t have enough money in the bank to pay for food. Unconscious beliefs lay dormant, and it’s up to us to unlearn some of the past to create a better future.”
The interlocking strands of discussion and scholarship create rich material for advisors and clients, as well as prospective ones, to consider when thinking about their wealth. At the Mariner office in Tulsa, Haggard and Cooper agreed that financial topics comprise half or less of the time they spend in many meetings with clients. Haggard views that composition as the “sign of a good meeting,” she said.
“We're thinking about it,” Haggard said. “We joke, but it's true that, you know, ‘That wasn't a portfolio review, that was a therapy session.’ It's not my role, it's not what I've trained in, but it does benefit me and my client to have some sort of knowledge of what's going on and how we can help.”
In addition, the increasing number of practitioners embracing psychology offers a path into the profession for those who may have that imposter syndrome or another voice telling them they aren’t cut out to be a planner.
“There are very good, successful advisors that really didn't have a financial background, and they can be successful in this business because they understand the psychology of it, how to relate to people,” Cooper said. “And so I don't think this industry is just for ‘financial-background type’ people.”
