I’m beginning to think financial planning is a profession filled with psychopaths.
After some 28 years of helping people with their lives and their money, I am convinced that it is a conscious appreciation of your emotions and behaviour towards money that is the single most important factor in you achieving your goals, flourishing in your life, and being happy. Regardless of your economic situation or personality, if you can understand why you act towards money the way you do, and use this knowledge to amend future behaviours, you will be in a better place.
Hence, if as planners we can be the catalyst to bring about this awareness, and then help implement the intelligent actions that it requires, then we have achieved a job well done.
However, like a psychopath with no emotional depth or empathy towards others, our financial planning process and curriculum emphasises left-brain analysis and communication. We look at the objective facts of the balance sheet, not the subjective influences of the heart. We focus on what a client has, not the person they are (or desire to be). Our analytical rigour is taken to the point where the average client receiving advice is left wondering ‘what is the point?’
Which is not to diminish the importance of technical competence. Fundamentally, mastery of numeracy, legal structures, and being able to understand the objective impact of legislation, mathematics and taxation on money is an essential skill.
Presenting this information in a compliant and concise fashion is foundational in presenting strategies that stand the test of time. But doing just this will only ever engage a small proportion of people. Without an emotional engagement, strategies will not be implemented nor persisted with by the majority of people.
When I look around though, I see financial planning as a field of endeavour focused on numbers, facts, and compliance.
I see a profession that relies on what we sell (financial products) for its definition rather than what we do (financial planning).
I see a national debate about tax rates on superannuation, rather than about ensuring that people feel the importance of saving.
Why aren’t we debating how folks can find their happiness from what they have rather than from envying what others have saved?
I see lip service paid to the notion of ‘knowing the client’ but this is demonstrated through many objective facts about their possessions. At best, the psychological tools at a planner’s disposal (if even these are used) are elementary. ‘How concerned about financial risk are you?’ Really?
John Gottman is a renowned marriage counsellor, who needs only 5 to 20 minutes observing a couple to be able to predict with 91% accuracy whether their marriage will succeed or fail. This is not because he is psychic, but rather that he has dedicated a career to scientifically studying the transactions between partners and then measuring their impact on the longevity and happiness and satisfaction of the relationship. In other words, he took the ultimate societal manifestation of emotions – marriage – and applied scientific techniques to understanding it better and helping others improve their lives. He used this information to demystify one of the most important relationships most people will ever have.
Why can’t our fascination with financial modelling, asset allocations and Monte Carlo projections extend also to studying our clients’ feelings about money?
Or better yet, how to engage our clients with the connections between financial wealth and physical well-being? Where is financial planning’s John Gottman?
Financial Planning is so dominated by left brain thinkers to the point that it borders on psychopathy, seeing emotions as the enemy of wealth accumulation. After all, emotional reactions to events like the GFC only served to exacerbate investment losses.
Yet to see a person’s behaviour with money as the single biggest threat to achieving their stated goals is to misunderstand the issue. Emotions are not to be ignored or, even worse, relegated to a lower stratum than logic. What is important is to appreciate that no decision at all can be made without emotions.
Psychotherapist Philippa Perry cites research that shows how emotions are critical to any decision making. A lack of emotion does not lead to more logical, reasoned choices – it leads to chaos. People rely on emotions to navigate their way through life, whether they are aware of it or not.
I was asked recently why more planners aren’t involved in Aged Care. It’s a financially complex area, especially when you consider the interplay between assets, Centrelink and nursing home costs. It is difficult to find a sector where people can so explicitly benefit from expert advice. It seems a no-brainer for planners to be involved here. Many financial planners have beefed up their expertise on this, developing their knowledge, and yet have relatively little to show for this.
I suspect that it has more to do with the emotional issues going through people’s minds. Seeing a parent age and become feeble is challenging at any time. But the planner who shows them how to come to terms with this, while caring for their Mum, and handling their siblings (especially the brother who has that shrew of a second wife who is just trying to get her hands on the antique dresser) without appearing to be a vulture themself is going to be the success.
But nobody puts the research and science behind understanding and teaching skills to deal with these emotions. Easier to just leave it to the psychopaths – numbers don’t talk back.
