A financial planner, René Bruer likes to joke that instead of earning his MBA in finance, he should have studied psychology.
A certified financial planner based in Tallahassee, Florida, Bruer estimates only 20 percent of his time with clients is spent talking about actual finances. The other 80 percent of the time, he’s playing the role of therapist. That’s because investors can often be tempted to make rash decisions as they react to economic or political news, or personal events. It is Bruer’s job to help clients understand how money gets entangled with their fears and emotions, all while reminding them to stick to their long-term investment strategy.
Sometimes that means extending what was supposed to be just an hour-long meeting to five hours as the clients suddenly disclose they’re on the verge of a divorce. It can also involve drying a client’s tears after the loss of a loved one or a cancer diagnosis. Traditionally taboo topics like faith and politics are on the table too, leading to some delicate conversations about how news events or an election cycle may heighten emotions or fears and lead to irrational decisions about money.
“We always talk about money in numbers — this fund versus that fund — but the reality is the emotions are what drives behavior, and ultimately we need to understand those habits and emotions,” Bruer says.
[See: 13 Ways to Take the Emotions Out of Investing.]
Indeed, even amid record market returns, a Charles Schwab survey of financial advisors found 84 percent of advisors report they have recently had to calm client nerves.
For these reasons, there’s a new breed of advisor: part financial planner, part therapist. The field is still in its infancy, and there isn’t one official certification yet recognized by the industry. That said, the interest in financial psychology is growing, and so are formal training programs, says Brad Klontz, a psychologist and certified financial planner, who also teaches as an associate professor at Creighton University’s Heider College of Business.
Following Kansas State University, which offered the nation’s first graduate-level certificate in financial therapy three years ago, Creighton University is launching its own graduate certificate program and MBA concentration in financial psychology and behavioral finance. Similarly, a master’s program in financial planning at Golden Gate University in San Francisco includes courses on coaching skills, therapeutic communication and behavioral finance.
These programs emphasize the need for financial planners to study emotional intelligence, understand family dynamics and sometimes employ psychotherapy tools, like specialized listening techniques, for guiding clients to make better financial decisions — particularly in stressful situations.
At initial meetings, the planner spends little time talking about numbers, and far more time trying to learn why the client has certain money habits, beliefs or attitudes toward risk. He may administer a psychological survey or give the client a worksheet as homework. (Klontz offers a 32-question quiz on his website, for example). Even the office may look different than that of other planners, with a living room-feel from plush sofas and chairs. (Researchers found that client stress levels decrease in less formal settings, when there’s no desk or table between the planner and client.)
PeachCap, a wealth management firm in Atlanta, has gamified the process of psychological discovery when new clients come on board. Each client fills out a lengthy survey to determine his or her avatar. (There are seven: giver, connector, problem solver, innovator, perfectionist, rebel and master). Since investing often comes down to emotional decisions, the survey’s goal is to identify how the client may react to various scenarios. The test determines the investor’s “super power,” or strength, and also a weakness or “kryptonite.” Advisors can use this knowledge to better tailor their advice to each client, especially in the event that he or she is grappling with a stressful life event, PeachCap founder David Miller says.
[See: 9 Psychological Biases That Hurt Investors.]
“Wealth managers — their job isn’t to manage money — that’s the portfolio manager’s job,” Miller says. “The wealth manager’s job is to manage emotions. Being in meetings with clients, there’s very very little interest in clients talking about the actual numbers and it’s the emotions and how that relates to what they want to accomplish.”
So how can you find a financial planner well-versed in emotional intelligence? Again, there’s no standard certification to look for. An industry group, the Financial Therapy Association, lists some of its members on its website, but the group is still small compared to the overall universe of financial planners. And since formal training programs are also relatively new, finding the right fit may simply entail testing out your chemistry with various advisors.
“It’s a little like dating,” says Madeline Valente, a wealth advisor for BlueSky Wealth Advisors in Pleasanton, California. “What is your gut telling you? Do you trust this person? Is this person taking the time to listen to you and address your needs? If you don’t feel comfortable with or heard by a potential advisor, it is likely that you may not even be able to have an honest conversation about your fears or be able to explain or admit to rash decisions should they arise in the future.”
Also, beware if the advisor spends more than 30 percent of the time talking rather than listening, says Holly Thomas, a financial planner in St. Petersburg, Florida.
“Pay attention to how many questions the advisor asks about you, your history, and who you are. Asking an advisor how they have helped other clients handle difficult emotional decisions might be one way to gauge whether there is a fit, or not,” she says.
Finally, in the event that there’s a true mental disorder or condition that’s underlying your money problems, a financial planner needs to be honest about his or her own limitations and refer you to a psychotherapist or other mental health professional.
[See: 10 Tips for Handling Investments and Divorce.]
“To be clear, your financial planner is not your therapist,” Klontz says. “But that doesn’t mean they can’t be therapeutic.”
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How Financial Planning Becomes Therapy originally appeared on usnews.com
