Preface

Financial planning is, at face value, a quantitative endeavor. There is a host of numbers that exist within a financial plan, representing a client's savings, debt, investments, retirement, insurance, and other numeric values associated with his or her financial well-being. In the proposed changes to the CFP® Board Standards of Professional Conduct, the CFP Board defines financial planning as ". . . a collaborative process that helps maximize a Client's potential for meeting life goals through Financial Advice that integrates relevant elements of the Client's personal and financial circumstances" (Proposed CFP Board Standards of Professional Conduct, 2017). Inherent within that definition are both the steps of the financial planning process as well as the content areas, essentially the necessary competencies of a CFP® professional, to provide competent and ethical financial planning.

The role of the financial planner is challenging and with it comes a high level of responsibility. Beyond the numbers, clients entrust not only their goals and dreams to their CFP® professional, but also the accumulation of their life's work. Years, and in some cases decades, of long hours in the office and careful investing culminate into a specific set of numbers on a spreadsheet. Clients bring into the financial-planning process their vision for the future as well as their vision for those closest to them. Conversely, clients also bring concerns regarding the current and future well-being of their loved ones. The financial planner is sometimes the first to hear the good news and is also the first phone call or text message when bad news arises, both of which require frank conversation, careful planning, action, and sometimes, thoughtful inaction. Therefore, financial planning is, at its core, a human endeavor.

So what about these clients? How do we help them discover (and then communicate) their hopes and dreams? What about the goals for their spouses, partners, or families? How do the interactions with those around them affect their decisions and financial well-being? How do relationships and communication with their advisors impact the financial-planning process? What do we know about individual behaviors such as spending, debt, planning, and saving relative to a variety of client profiles and contexts? How does stress impact the dialogue between the client and planner . . . what can the planner do to mitigate this stress? How do the cognitive load and attention resources of the client during the development and presentation of a financial plan impact the client's relationship with the planner? How does technology impact a client's willingness to communicate more freely with their financial planner? What about the sociological issues that are inherently part of the relationship between client and planner? Beyond these questions, there are hundreds more that financial planners encounter each and every day, many of which have a direct impact on planner efficacy and client success.

Behavioral finance helps answer some of these questions. It brings elements of cognitive and behavioral psychology to both economics and finance to examine why investors make irrational financial decisions. These irrational decisions in many cases stem from heuristics, or mental shortcuts, that involve only one aspect of a complex program or phenomenon, leading to errors in judgment, or biases. In behavioral finance, the focus is on the individual and not the market. Essentially, and at the risk of oversimplifying, the tidiness of modern portfolio theory becomes rather messy with the arrival of the human and all of his thoughts and actions. Behavioral finance helps explain some of that messiness with an underlying premise that the individuals making the decisions are complex and not always well-informed. All of these ideas are relevant to financial planning. Practitioners need to know about concepts such as choice architecture, anchoring, and availability bias, all of which have an impact in the daily life of serving clients and are helpful in explaining some of these irrational decisions.

But are these decisions actually irrational? From the outside looking in, it may appear so, but it is also possible that these decisions can be explained by a host of other factors. Many psychologists, including preeminent scholars such as Skinner and Freud, saw many of the actions of the individual based predominantly on environmental factors and those within the psyche of the individual. Skinner saw the environment as solely determining the actions of the individual. Essentially, the individual does not make any decisions on her or his own-the environment does it for them. Freud saw the unconscious-the automated and visceral elements of the self and thought processes-as a key determinant of behavior and decision-making. Although Freud and Skinner saw many elements of psychology quite differently (and there are many aspects of their work that have been both confirmed and refuted in recent years), their work identifies multiple factors that impact human behavior and decision-making. Therefore, what is an irrational decision to one may be the best decision, given the circumstance, to another. So perhaps irrational is in the eye of the beholder.

The body of literature from behavioral finance is critical to our current and future work in serving clients (as well as important parts of this book), but perhaps we should think more broadly. We need to further investigate stress, cognition, interpersonal relationships, communication, identity, and other basic elements, all within the framework of financial planning. We need to invite researchers from fields such as clinical and cognitive psychology, sociology, education, and others to better understand the rationale behind client perceptions, behaviors, and decision-making and then specifically outline the implications of this work (the "So what?") in an effort to help practitioners and CFP® professionals do their work better.

In medicine, evidence-based practice is where medical professionals use relevant data to make healthcare decisions for individual patients. Clinical practice, patient values, and the best available research and data are all integrated to formulate a healthcare plan. Perhaps most importantly, individual characteristics and preferences-so essentially what works best for each patient physically, psychologically, emotionally, and spiritually-are primary drivers in determining treatment. It is not, therefore, merely a matter of one-size-fits-all nor a sole focus on the action of the physician, but rather, a personalized approach to medicine based upon the patient's health status, research, and desired outcomes: a patient-centered approach.

Similarly, in education, the classroom approach for decades was teacher-centric, where the actions and knowledge of the teacher were considered the primary drivers in determining the success of an educational offering or program of study. If the instructor performed his or her actions well, then the assumption was that the students must be successful. But then, a few decades ago, educational psychologists identified key attributes associated with cognition and learner development to help better understand the student learner. These advances placed the focus of teaching pedagogy (essentially, the practice of teaching) on what works for the learner, not the teacher. We now almost universally define success in education as not what the teacher knows or does, but rather, by whether the student learned a concept or not: a student-centered approach.

Perhaps we are at a similar juncture in financial planning, where the profession has begun to realize that the knowledge and actions of the planner are critical, but useless if the client is unsuccessful. No financial planner says, "My client failed to reach her lifetime goals, but not to worry, I myself was competent throughout the financial planning process." We as a profession can follow medicine and education and develop deeper insights into our practice and focus more closely on the individual. Ultimately, taking this evidence-based approach to financial planning, specifically the characteristics of the client, would yield new findings that could help prepare future generations with the competencies and skills that directly relate to the human element of this profession. The basic fundamentals of investments, taxation, insurance, estate planning, communication, and so on would still and likely always be vital, but these content areas and competencies can be developed and refined solely with the client in mind: a client-centered approach.

Against that backdrop, I present Client Psychology. This book brings together the expected research areas such as financial planning, behavioral finance, communication, and financial therapy. Just as importantly, client psychology invites new fields (or those new to financial planning) such as sociology, cognitive psychology, education, social work, and others. This interdisciplinary approach, bringing diverse fields, methodologies, and researchers together to focus on the financial planning client, can lead to new knowledge that has a significant impact on our profession. As we all know, all of this new knowledge has limited relevance if we cannot answer the "So what?" question. We hope to do so here.

There is an added dimension to this work given the influence of technology in financial planning. As the use and access of artificial...