The Financial Planner Of The Future

Broadening skill sets to provide a holistic approach

by Dr. Emily Koochel, Ph.D., AFC^®, CFT-I^™, BFA^™

The financial planning profession continues to evolve. Where advisors once engaged primarily in transactional relationships with their clients, fueled by selling products, they are now shifting to a more holistic planning approach, considering all aspects of a client’s life, including both objective financial goals and subjective life ambitions.^[1] According to eMoney research, 92% of planners provide holistic financial planning services to their clients with 53% expecting holistic planning to see moderate growth and 25% anticipating extreme growth over the next five years.^[2]

The Shifting Financial Planning Conversation

Client expectations are in line with financial industry shifts, some of which have paralleled the development of technology. In 1969, when Loren Dunton and James Johnston were holding their first meeting with 11 other financial services colleagues, forming what would later pave the way for the College of Financial Planning among other membership associations^[3], ARPANET (the original name for the internet) and the world wide web as we know it today were still several years away from being publicly available, thus assuring that financial professionals were still the primary source of information and education about money.

As access to financial information has become more widely available people no longer need someone to give them the basic advice they can find on the internet. However, what they do still need is a trusted advisor to help guide them along their personal financial journey. The development of technology, changes in advisor fee structures, and evolving client expectations have changed the scope of advisor services from guiding clients on which products to buy and sell, to providing the comprehensive financial planning that requires more in-depth and sophisticated conversations.

Consumers Expect Personalization

As the role of the advisor has evolved, eMoney research^[4] shows that they are being sought out by consumers for more than their financial knowledge as someone who can:

• Factor in all aspects of their lives, including understanding their financial stress and working with them to find solutions to lessen it
• Provide coaching to help promote positive financial behavior
• Actively engage them in the financial planning process

These considerations help advisors understand a client’s money mindset and provide a personalized financial planning experience. In fact, 86% of all advisors (and 94% of CFP^® professionals) believe personalization is important in the financial planning process, with two out of three advisors defining personalization as customizing plans to individual client goals, emphasizing that they do not take a “cookie cutter approach” to their financial planning process.^[5]

It’s a standard many of us have come to expect. From Amazon to Netflix, we live in a time where many services have been customized to our personal preferences—understanding all aspects of our lives—and financial planning is no exception. To meet the growing demand for holistic planning and offer truly personalized services, many advisors are gathering additional information outside of traditional financial statements, including information about previous money experiences, personal values, and attitudes towards money among others.

Why FinPsych Is Gaining Popularity

This continued evolution of client expectations and financial planning practices has not gone unnoticed by the profession’s major regulatory bodies. In 2021 the Psychology of Financial Planning was introduced as a principal knowledge domain on the CFP Board’s Practice Analysis Study, the largest research project in the U.S. related to the financial planning profession. In March 2022, The Psychology of Financial Planning was officially added as a Principal Knowledge Topic—representing 7% of the CFP^® exam and cementing its importance in the profession.

Our research shows that financial planners want more guidance and education as only one in three feel their training related to behavioral finance and financial psychology has been sufficient. But even with this gap, advisors understand the importance of financial psychology in the client-advisor relationship. In fact, 86% report that client retention and loyalty increase when financial psychology is integrated into the financial planning process.^[5]

In addition to client retention, eMoney found^[5] that more than 80% of advisors agree that applying financial psychology benefits the financial planning process specifically by:

• Increasing the ability to provide personalized services to clients (83%)
• Increasing client engagement with the financial plan (85%)
• Increasing client satisfaction (85%)
• Leading to higher success rates of the client achieving their goals (84%)
• Enabling clients to better assess and change their financial behaviors (82%)

While financial psychology may offer many benefits, not all planners are comfortable discussing personal topics with clients. We found planners are generally more comfortable discussing positive topics such as retirement planning (78%), client goals (62%), and financial inheritances (57%), than inherently more difficult topics such as serious illness (23%), divorce planning (18%), and premarital planning (18%). We also found that the likelihood to engage in more financial psychology appears to uniquely differ between male and female planners.^[2] 

Women Advisors Account for Growing Use of Financial Psychology Tactics

According to our research^[5], female advisors feel it is more important to provide clients with a personalized financial planning experience than male advisors (76% versus 53%). Women are also using more behavioral finance and financial psychology in the planning process (59% versus 36%), making them more likely to:

• Ask clients about their financial stress and anxiety (59% versus 49%)
• Consider client values when assessing a client’s financial well-being (59% versus 49%)
• Consider clients’ expectations about financial goals and performance (84% versus 66%)
• Make affirmative statements to support and encourage clients (57% versus 47%)

Empirical research has found that gender differences in empathy could account for this disparity as it is commonly indicated that women have higher levels than do men. In other words, women tend to have a greater ability to understand another person’s thoughts and feelings from their perspective.^[6]

When it comes to offering a holistic planning approach, women are found to be emphasizing key elements of, and are more likely to engage in, applying financial psychology tactics through more personalized planning and assessment of goals and values—in line with the growing trends in the industry. Further, trust is a vital component of any planning relationship and according to our data, females are more likely to focus on building rapport and encouraging clients, all of which shows an investment into building client trust.^[5]

Looking beyond the planning practices of female advisors, “an unprecedented amount of assets will shift into the hands of US women over the next three to five years, representing a $30 trillion opportunity by the end of the decade.”^[7] And research shows women are more likely to work with female advisors compared to men—highlighting an even greater need for female planners as they currently make up approximately 23% of the profession according to the CFP Board.^[8]

Financial Planning Promotes Long-term Client Well-being

It’s an exciting time to be part of the financial services industry. I, like so many others, pursued a career as a financial professional because of my desire to help people. Whether you are a financial advisor, planner, therapist, educator or any other practitioner in this broad field, the changes we will continue to experience help to further our ability to promote growth in well-being and improve the quality of life for our clients.

[1] “The Evolution of the Financial Industry.” LPL Financial, 2021. January 19. https://www.lpl.com/newsroom/read/lpl-evolution-financial-industry-journey.html.

[2] eMoney Leading with Planning Research, May 2022, Advisors n=360

[3] Yeske, Dave. “A Concise History of the Financial Planning Profession.” FPA, 2016. September. https://www.financialplanningassociation.org/article/journal/SEP16-concise-history-financial-planning-profession.

[4] eMoney Consumer Pulse Survey, August 2022, n=1,201

[5] eMoney Evolution of Advice Research, July 2022, Advisors n=300

[6] Klein KJK, Hodges SD. “Gender differences, motivation, and empathic accuracy: When it pays to understand.” Personality and Social Psychology Bulletin. 2001; 27:720–730.

[7] Baghai Pooneh, Olivia Howard, Lakshmi Prakash, and Jill Zucker. “Women as the next Wave of Growth in US Wealth Management.” McKinsey & Company, 2020. July 29. https://www.mckinsey.com/industries/financial-services/our-insights/women-as-the-next-wave-of-growth-in-us-wealth-management.

[8] “Making More Room for Women in the Financial Planning Profession.” CFP Board, n.d. https://www.cfp.net/-/media/files/cfp-board/knowledge/reports-and-research/womens-initiative/cfp-board_win_web.pdf.