The Changing Role
of Financial Planners
By Roger Wellington, Executive Director
Stunning Research Completely Validates Life Planning Approach to Financial Advice! That’s the headline we should have seen when a recent study was published by the Journal of Financial Planning1. The Kinder Institute has been teaching advisors for years how to discover and incorporate clients’ values and broader aspirations for life into financial plans and recommendations. We’ve watched advisors dramatically improve their practices and cause extraordinary client transformations using this approach. But we never had more than anecdotal evidence to support our case…until now.
In this landmark study based on a survey of almost 1,400 financial planners, two highly accomplished professors of finance and management from the University of Louisville, David Dubofsky and Lyle Sussman, provide the first systematic description of the client-advisor relationship in all its complexity—including the non-financial issues that financial planners are called upon to address. The results were staggering. The authors themselves “were astonished at the array of human frailties emerging in the client-planner relationship.” As a result, the authors deliver an unequivocal conclusion and clearly validate George Kinder’s work in the process:
[Our research] “empirically supported the thesis that financial planners are increasingly called upon to provide non-financial counseling and support as their clients live out the human drama of day-to-day living. This thesis supported the major tenet of a holistic perspective: clients' decisions about managing financial assets are inextricably related to their physical and psycho-social well-being (Kinder and Galvan, 2006). How one values, acquires, invests, spends, and bequeaths financial assets directly affects quality of life”
The study provides a wealth of detail about the non-financial aspect of the client-advisor relationship:
- 89% of financial planners report that they engage in non-financial coaching and counseling
- Only 75% of the work financial planners perform for clients involves financial issues. “The other 25% of the work involves dealing with non-financial issues—human drama and frailties.”
- “74% of the planners have experienced a session in which a client became emotionally distraught”
- “58% of our respondents have been told a secret by a client, dealing with a non-financial issue, that no other person knows.”
- “48% of our respondents have mediated marital discord”
- “36% said that a client has asked the financial planner to pray with them”
- 10% have had discussions with clients about suicide
Such results are certainly sobering and obviously point to the importance of being prepared to support clients over a wide range of emotionally-laden issues. The authors agree and write passionately about the implications. We couldn’t make a more convincing case for Life Planning training than the following passage from their article:
“Spreadsheets, optimization algorithms, Monte Carlo simulations, economic forecasts, and actuarial tables have been and will continue to be necessary tools for financial planners. But our study underscores and empirically supports the thesis highlighted in our introduction: financial acumen is necessary for financial planning but not sufficient. Our study also underscores the need for a new set of tools.
In the words of two of our respondents:
When people pour out their life's financial history to you, their goals, their aspirations, it is very difficult for them not to pour out non-financial information ... and when they provide you the non-financial information they expect non-financial advice. To most people it is hard to separate the two. I am often asked, 'How can you know my goals, if you do not know me?'
Money is really the last taboo. More people will speak to their friends (and pastors) about their sex life than their money. Who can admit to friends that they've racked up $103,000 in credit card bills? Or who can stand up in church (or at the water cooler at work) and ask for help in how to allocate their $4 million estate among their children? It would have to be a very wealthy parish/employee group to embrace that kind of discussion. As a result, a financial planner is one of the few people that clients can speak to about such sensitive topics. They often seem eager to share tough decisions and issues.
Divorce, family strife, suicide, drugs, mental health, religion and spirituality, illness, and death—this reads like a list of issues that would and should be managed by a member of the clergy, social worker, psychologist, or physician. Our research reveals that financial planners often face these issues. Knowledge about investments and insurance will not solve these problems. Possessing advanced degrees in accounting, taxation, finance, or investments will serve planners well, but will not be sufficient. To the extent that financial planning is designed to help a client meet personal life goals, coaching and life planning skills will become requisite skills for financial planners.” [emphasis added]
Amen!
1 Sussman and Dubofsky, “The Changing Role of the Financial Planner” Journal of Financial Planning (August & September 2009)
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