Whether you are a new or seasoned financial professional, you probably have a preferred approach to your client relationships. You understand their goals and review how you can help them achieve those goals. But financial decisions tend to run up against emotions — and that's where things can go awry.
That's why learning more about financial psychology can help you better understand client behavior and the factors that drive decisions. It's a great way to hone your listening and communication skills and use an empathy-based approach to connecting with clients.
A recent survey found 87% of Americans experience significant stress about money, losing sleep and experiencing negative effects on their relationships and work performance. Other reports found debt, money management challenges and low financial literacy are significant sources of stress for many.
Now, couple those concerns with the strain of dealing with inflation and market turbulence, and it's no wonder so many feel financial stress. But these scenarios are exactly where a professional can help soothe concerns and develop a personalized path forward.
Building an understanding of foundation of financial psychology helps. Listen to your clients to understand the emotions, potential biases and driving forces behind their decisions. It can make it easier to connect with them and help ensure they stay the course and see better results.
Money is inherently emotional. But being open to understanding and finding ways to help clients navigate their fears and concerns can help you build trust and have stronger and deeper relationships over the long run. Here's how to start.
You don't need to go back to school for a degree in psychology, but understanding the basics of behavioral finance and how they apply to clients is a great start. Organizations like the Certified Financial Planner (CFP) Board are creating more educational materials around the psychology of finance to help financial professionals better understand the topic and how it can impact clients' financial well-being.
Another consideration is how changing trends may impact your clients' financial behavior. For example, more women are high earners and family breadwinners, and we're about to undergo a massive shift in generational wealth transfers. Many of your clients may feel uncertain about their finances and have different questions and concerns than previous generations.
People's opinions and thoughts about money begin forming when they're very young — and those habits are often hard to change. Ask clients about their background and some of their first experiences or memories about money. That will give you a primer on client decision making, feelings and behavior around their finances.
You can learn a lot about some of their feelings, anxieties and behaviors about money from a few open-ended questions.
Some questions to consider:
It's human nature to want to be heard and understood. When speaking with your clients, try to dig deeper into some of their dreams, hopes and financial fears — beyond the surface-level answers. Sometimes financial goals, like planning for retirement, can feel abstract. Instead, ask some open-ended questions that might help you learn more about clients' money motivations. You may find answers to these questions vary wildly from what clients think they want or need.
For example:
You know the same approach for every client doesn't work. Listening to your clients, understanding their needs and finding the best way to communicate with them can go a long way. Some clients may need more visual presentations, verbal reassurance or positive reinforcement than others.
Learning these nuances for clients helps them feel like you're paying attention and not taking a one-size-fits-all approach. To start, ask clients about their preferred learning styles and what kinds of communication may work best for them. That opens the door to better communication and can help clients feel more comfortable asking questions or for clarification when they don't understand.
Sometimes, it's your job to have hard conversations with your clients. For example, you may have to discuss why it's challenging for them to meet their financial goals or talk about estate planning. When you do, consider psychological factors, like fear and anxiety, that may drive client behavior.
Approach the conversation from a place of empathy, and try to reframe it into a more positive outlook or mindset. Having these hard conversations and facing fears can help put your clients on the right path moving forward.
Open and consistent communication is one of the best ways to reassure your clients. Let them know you're available to discuss their plans and set up regular times to speak with them, even if it's a quick check-in. While some clients are happy with an annual check-up, others may need to connect more frequently.
It's also important to communicate that financial plans aren't set in stone. Life events and changes happen, and clients' behavior and opinions can evolve over time. Let them know if things do change, you'll meet with them to review and update their plans accordingly.
Building lasting relationships with clients is top of mind for many financial professionals. Learning some of the basic frameworks of psychology and how these may play a role in your client's decision making can help you better understand them and serve their needs.
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