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Where your client’s life meets their money – the birth of the Financial Coach

Published: July 5, 2017 by Rob Macdonald, Fundhouse

Planning for a client’s life is as important as planning for their money

As Carl Richards puts it: At the end of the day, when you ask somebody, “Why is your money invested the way it is?” the only correct answer to that is, “Because it gives me the greatest likelihood of hitting my goals.” In order to do that, they have to be clear on their goals. Now, as Carl says, “who is going to help them with all of that?”

The answer to the question is obviously their financial planner. But to help someone determine his or her goals is not simple. Often people haven’t thought about their life goals. So it is no surprise there is now a whole new field within financial planning called “Life Planning” or as some say, “Financial Life Planning”.

The Life Planning process seeks to help people plan their lives before they actually plan their money. For what is the role of money, other than as a means to an end? But helping someone plan their life, and in so doing articulate their life goals requires significant interpersonal skills that combine the ability to listen; to question; to guide; to counsel; to empathise, and of course, to coach. These are the sorts of skills one would expect of a psychologist. But financial planning clients don’t necessarily get the privilege of sitting on the therapist’s couch before starting the financial planning process.

And it is not only about how the process starts. As Joe Duran, the founder of United Capital Management, a US based financial planning business dedicated to what it terms Financial Life Management, says: “Once a plan is in place, you can be very sure that the very next day something will change that will impact that plan.” It may be something like inflation; interest rates or investment market returns. Or it could be something in the client’s life, like a job loss, a death in the family or a financial emergency amongst a host of many possibilities. So to help clients achieve their goals requires an ongoing coaching process to ensure that the plan is effectively implemented.

Life planning skills differ from financial planning skills

This ongoing coaching process of helping clients meet their life goals is a task that requires an ability to operate in multiple ways, using the head (thinking), the heart (feeling) and the hands (doing). All these domains of human capacity are at play all the time. Financial planners try to help clients analyse matters important to them in as rational a manner as possible – the head; they also help clients manage their emotions whether in response to the latest market movements or in response to a personal crisis or windfall – the heart; and probably most importantly, they have to help them to do the right thing – very often sitting on one’s hands is more effective than doing something with them! For a Financial Planner to help clients successfully set appropriate life goals and navigate the journey to achieving them requires an ability to operate effectively in all three of these domains.

Unfortunately most of a financial planner’s training and education is focused on the head domain, and even then the knowledge they acquire is narrowly focused on the legal and technical aspects of their job. This is inadequate preparation for a role which de facto is as much a life-planning role as a financial planning role. By combining these two roles we see the birth of the true Financial Coach – a professional who genuinely operates where people’s lives meet their money.

But what sort of skills does a true Financial Coach need? I think there are a minimum of four skills needed, and each are as important as the other.

Skill One: Able to use Head, Heart and Hands

The first skill is the already mentioned ability to operate confidently and effectively in the thinking, feeling and doing domains. To be able to build rapport with a client (feeling); then to be able to explore possibilities (thinking) that involve genuine curiousity rather than relying on the “obvious” intellectual or technical solution; and then to co-ordinate action (doing) with clients that involve action on both the part of the financial planner and the client. Probably one of the toughest tasks that a financial coach will face is getting clients to action the agreed upon plan – particularly when it comes to unpleasant tasks like reducing their monthly spending, or even something as simple as getting a Power of Attorney signed.

Skill Two: Able to communicate effectively

The second set of key skills for an effective financial coach is relevant and effective communication skills. Research indicates that communication with a client has the biggest influence on their experience of financial advice. Communication is the lifeblood of the relationship with the client. So for a financial planner to be an effective coach, it is critical to be able to communicate effectively, and in particular, have effective conversations. It’s not only about listening attentively to a client, but also being able to articulate things to a client in a way that they understand fully. How one communicates with a client between meetings, and about what, is also critical.

Skill Three: Able to do Life Planning

For a financial planner to be able to develop, review and adjust a financial plan that is relevant to the evolving life goals of a client, it is critical that a financial planner has the ability to engage with a client using life-planning techniques. Albert Einstein said, “If I had an hour to solve a problem and my life depended on the solution, I would spend the first fifty-five minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.” The same applies to financial life planning. Really understanding a person’s life and their life goals does not happen by chance. It needs skilled intent, with sound and relevant inquiry skills. Clients need their financial planners to ask them the right questions. The quality of their lives actually does depend on it.

Skill Four: Able to manage Investor Behaviour

Given that financial planners operate in the world of money and investments, a solid understanding of investor behaviour is critical to be able to coach a client effectively. Research repeatedly shows that clients often don’t achieve their investment goals because of how they respond to factors such as recent market movements or comparative performance, resulting in decisions influenced by cognitive or emotional factors. An effective financial coach needs to understand these factors and how one can effectively manage them to protect clients from themselves.

Skills are important but a coaching “way of being” is key

Whilst we can identify four generic coaching skills that financial planners ideally would have to act as effective financial coaches, the reality is that each client is unique. Which means that underpinning these four sets of skills is the need for financial planners to have the capacity, competence and confidence to adopt a coaching “way of being”. It is not a given that when one has learned a new set of skills that one can automatically apply these skills. The risk is that one does this in a formulaic way, which undermines the coaching process that is geared to supporting a client meet his or her own unique needs. Such support cannot be generic.

This is why financial planning is a profession that is undoubtedly both “art” and “science”, and being able to operate with a coaching “way of being” is probably the key differentiator between those financial planners who are effective coaches and those who are not. What does it mean? Essentially it means you have successfully mastered the “art” of coaching, and developed the ability to engage with each client in a way that ensures that they receive the appropriate level of support and financial coaching. This surely will give your client the greatest likelihood of their financial plan enabling them to achieve their life goals.