Coaching and behavioural finance theories continue to rise in prominence within the advice industry. Here Isabel Baxter explores why these skills are vital for advisers…
More than half (54%) the pundits who took part in a recent PA Asks were in majority agreement about the growing need for both the study of the influence of psychology on client decision making and the broader inclusion of life planning within advice.
These results came on the back of comments from Institute for Financial Wellbeing founder Chris Budd at the Personal Finance Society conference.
Speaking at Duty Bound 2023, Budd said it was "outrageous" that advisers do not receive training for financial coaching, calling the skillset "essential" for good client outcomes.
Budd believes it is firstly important to know the difference between financial coaching and coaching.
Speaking to Professional Adviser, he explains that financial coaching is a "discipline of its own, where advisers are required to delve deeper into a client's relationship with money".
Financial coaching is "only to be practiced by those who are trained," Budd adds.
Meanwhile, coaching is having listening, questioning skills, and empathy to help a client to understand themselves better.
Budd says that coaching is not about providing solutions. Instead, it is about asking questions to help the client work out their objective.
"There are times when you do not have to give a solution," he argues. "The objective is to try and uncover options, rather than gain answers."
This skillset can be especially hard for advisers as they are trained to solve problems for their clients, Budd explains.
"There are currently no requirements for advisers to have training to truly have the ability to listen, yet it is the most important skills they should have," he says.
Budd believes that anybody who wants to be a financial planner should have a "discovering session" with their client where they ask what the purpose is of their money.
Budd also highlights the importance of practicing coaching skills, as "to be genuinely interested in the other person can be difficult".
Despite this, he believes coaching should be core training for every single adviser as it will improve client outcomes.
"A client may not even realise what they want, but as an adviser you can create better outcomes but making them aware of what their money can actually be for."
Although there are benefits to coaching and behavioural psychology, Budd believes it can become dangerous if an adviser chooses to use it the wrong way.
"If it [behavioural psychology] is misused to control a client's behaviour, it is very dangerous," he explains.
Budd therefore warns that advisers must coach so decisions are based on the client's values not theirs.
Making clients feel safe
Simplicity Financial Planning founder Samantha Bradford, this year's Women in Financial Advice Awards (WIFA) winner for the financial coaching category, says it is important when having conversations with clients to give them a "safe space to truly open up".
"I like to tell my clients nothing is off the table, and we explore together how to build their perfect life," she explains. "I like them to feel like they are in a financial therapy session."
Bradford explains that the base for an advice service is the coaching and financial coaching goes one step further.
By delving into a client's relationship with money, she believes they then start to recognise their own patterns and behaviours when it comes to finances.
"This even can go to the extent where it allows them to be in a moment when you [an adviser] are not beside them and they will begin to know how to react," Bradford adds.
This is because financial coaching allows clients to recognise old patterns and understand how they operate around money. By doing so, Bradford says they can "become a better role model for their family".
Jarrovian Wealth financial planner Francesca Smith who made the WIFA shortlist for the coaching category, believes that financial coaching is now more accessible for clients.
"Financial coaching is about finding out about a client's goals, objectives, fears and making services bespoke," she says. "It allows people to really engage with finance in a more manageable way."
Smith explains that as everyone is in a different financial position, the major benefit to coaching is enabling clients to "take stock" and formulate a plan despite what position they are in.
Smith also notes as advisers, it is important to recognise the different life stages of clients.
She explained that a client in their 20s is very different to one in their 30s who might have young family or other pressures, or someone in their 50s/60s looking to retire.
"There are more situations arising where people are needing support," Smith adds. "It is really important that advisers are somebody that the client can turn to at all these different stages."
Financial wellbeing and mental health
Many suggest there is a link between the increased focus on financial wellbeing and the rise in mental health focus.
"We are not programmed to be good with money, neuroscience will show you when we try to make financial decisions, the part of our brain that makes us afraid is active," Budd says.
Due to this, when making monetary decisions, he says the impact can be "huge".
"Money causes stress and that is bad your mental health. Long term financial planning decisions especially is linked to financial health," Budd says.
Therefore, he believes it is an adviser's job to "acknowledge that, accept it and be respectful of it".
This can be done through adopting the soft skills mentioned to "make the client feel safe".
Bradford also believes there is a link to be made between financial health and mental health.
"Anxiety over money is one of the main causes of mental health issues," she says.
At Simplicity Financial Planning, Bradford's team works with a mental health first aid organisation in case clients need further support.
She believes one of the reasons why financial anxiety emerges is because people are still afraid to talk about money due to society making it an uncomfortable topic.
"How are we able to create a safe space for people to talk about money when society tells us not too," Bradford argues.
By having conversations with a financial coach, the WIFA winner believes "a load can be taken off mentally".
"If you create a space for clients where they can explore what they truly want to do, mental health can be positively impacted by this," she adds.
Sharing the same view, Smith believes the main reason for financial stress is that we do not come out of education equipped enough to manage our own finances.
The future of behavioural psychology in financial advice
It can be said that understanding behavioural psychology and financial wellbeing will become something every adviser will need to consider.
Bradford believes for advice firms who do not understand this and consider it when serving clients, it will negatively impact their business.
"Clients will go to other advisers who have more emotional intelligence," she argues.
Smith says understanding a client's behavioural psychology is important as "everyone has a different view towards money, and everyone has different behaviour towards money".
She believes this stems from childhood and understanding a client's wellbeing and state of mind and the impact this has on the decisions they are making is a major part of the advice journey.
