Introduction

Successful financial planners understand one crucial thing about their clients: Personal finance and psychology are inextricably linked. If someone is not good with people, they're not going to be a good financial planner. Because when a planner gives their client advice, they are facing off against hundreds of thousands of years of human psychological conditioning, as well as their client's unique beliefs, behaviors, habits, and background. Knowledge of clients' financial psychology has never been more essential to the practice of financial planning. As technology continues to advance, making information more and more accessible to clients, there is a greater need for each financial planner to maximize their relevance through a keen ability to understand, respond, and in some cases predict, their client's behavior relative to a variety of circumstances and life events. The financial planner is no longer the gatekeeper to client data, and clients are not interested in receiving cookie-cutter advice. The value and future of this great profession is on the human side, being able to understand each client's circumstance - financial and otherwise - so that they are adequately heard and served in their own unique way by a trusted advisor.

Getting to know your client sounds like a simple proposition: Schedule a time to meet, ask about their goals, and just listen. But, as accomplished planners will tell you, it is so much more than that. Today's financial planning is about more than just portfolios and products. The field has evolved to take into consideration all of the areas in a client's life that are impacted by money: their pursuit of meaning; financial goals that are in line with their values; and concerns about the impact of money on those who matter most to them. At the same time, a less-evolved financial planner will say to us, "I have been doing this for 10 years now and I know my clients." That may be true. They may serve their clients well, build relationships with them and their families, and help them meet their financial goals. But what about the client who did not return after the discovery meeting? How about the client who didn't follow through on every aspect of their financial plan? More importantly, what about the clients the planner hopes to add to their practice who may bring different life experiences and perceptions than their own or the colleagues at their firm?

THE IMPERFECT HUMAN

The truth is, our primal brains are not wired to make smart money decisions. They are wired to survive in the moment, grab instant gratification, save nothing, and share everything. Our smartphones, tablets, apps, and computers all get regular software updates, but our brains have essentially been the same for tens of thousands of years. We are still wired like our tribal ancestors, designed to exist in the harsh wilderness. In prehistoric times, there was no way to save the meat of a woolly mammoth for later. The tribe needed to consume it quickly before it spoiled. If a member of the tribe refused to share the meat with others, they would be banished and ultimately die. That hunter-gatherer, tribal mentality is still alive inside our modern-day minds. Centuries of these experiences created the social creatures who, in many cases, struggle to think of the long term because of short-term emotions such as fear, FOMO, and the countless biases that impact our decisions and, ultimately, our financial and overall well-being. Stacked on top of this are our backgrounds, beliefs, and experiences around money - all of which shape our unique financial psychology.

There is an old adage in education, "telling isn't teaching." This means that true learning comes from experience and engagement with content, not from someone reciting facts for the purpose of passing an exam. A similar philosophy holds true with financial planning: Merely telling clients the right thing to do is not enough to bring value in this competitive market. Furthermore, there are countless online sites and media "experts" who tell people to "buy low and sell high," to not drink expensive lattes, or to just save more than they spend. People already know this. They know they should save money, avoid revolving debt, make smart investments, and live within their means. Yet, so many people struggle with these basic concepts because of their financial psychology: They know better, but they just can't seem to do better.

Consider the following examples:

• Our epidemic of overspending and undersaving
• Buying when the market is high and selling when it is low, doing the exact opposite of what's in their best interest
• Trying to get rich quick
• Having a lack of diversification
• Saying they want one thing but failing to follow through
• Having trust issues around money
• Blowing a bonus, inheritance, lottery win, or even a big sports contract
• Failing to put a will or trust into place
• Getting rid of money out of feelings of guilt
• Providing financial support to adult children when the client can't afford it and/or the children misuse the money
• Having trouble saying "no" to requests for money from family and friends, even when the client knows they should
• Chronic money conflicts with spouses, partners, and family members
• Lying about or hiding financial actions from a partner or spouse around money
• Failing to follow through on financial advice, even when they requested it
• Feeling too anxious to spend money even when they can afford to
• Sacrificing health, relationships, and emotional well-being in the pursuit of more, even when by all objective evidence they have enough
• Avoidance around money issues
• A lack of motivation, creativity, and passion in occupational pursuits

OUR VALUE AS FINANCIAL PLANNERS

So, given all our imperfections as they relate to money, financial planners must equip themselves with the knowledge and tools to help clients overcome these mental obstacles. Being knowledgeable is not enough. Financial planners must then use this knowledge to understand their clients' unique personal, family, and cultural backgrounds and how they impact their financial goals. To do this, financial planners must first understand their own psychology of money, including the worldview and biases they bring to the client relationship. This will enable them to be sensitive to each client's unique worldview and biases. Finally, the practitioner's knowledge, as well as their understanding of their client, must be enacted with a variety of tools and techniques that help the planner lead the client toward their goals.

We considered all of the above as we were writing this book. Our goal was to bring relevant research from various disciplines, understanding, and compassion to financial planning. We provide a broad overview of everything that makes the financial planning client "tick," what motivates them, hinders them, and affects their biases, beliefs, and behaviors. Next, we wanted to help you as a financial planner better understand your own worldview and biases, enabling you to better engage and retain clients, most notably ones who differ from you. Finally, we wanted to be specific in providing tools and techniques that you can use in your practice to better serve each and every client with whom you work. The Psychology of Financial Planning combines the science of the mind with the science of money, demonstrating proven techniques to help clients feel, think, and behave in a financially healthy and responsible way. Just as importantly, it is designed to help you help your clients based not on your worldview and experiences, but theirs. If we are going to be client-centered, it needs to be about the client! We believe this book can help you do that and ensure that both you and your clients are successful.

HOW TO USE THIS BOOK

The inclusion of the psychology of financial planning in the requirements for current and prospective CFP® professionals is another step forward for the profession in becoming more client centered. We've organized this book into five sections, focusing on key elements that impact a client's financial psychology, incorporating all of the learning objectives and, more importantly, bringing contexts, tools, and solutions to addressing each of them. We do not just "cover" them. We dive deep into what they mean, why they are important, and, most importantly, what to do when addressing these objectives in real-time. Our goal is not only to explain financial psychology and how it contributes to problem financial behaviors, triggers, flashpoints, beliefs, and cognitive biases, but to provide exercises and tools designed to help facilitate behavioral change in a compassionate and effective way. Planners can fall into the trap of asking the wrong questions, therefore impeding or even halting a clients' progress. The Psychology of Financial Planning, along with the accompanying toolkit, helps financial planners, investment advisors, financial counselors, money managers, coaches, financial therapists, clergy, and psychotherapists-including psychologists, psychiatrists, social workers, counselors, and marriage and family therapists-avoid common pitfalls and get to the root of financial difficulties with their clients. When a planner gets inside the client's mind, they'll get...