How to make financial advice stick

It’s a cause of frustration that almost every financial adviser is familiar with: sound advice that, for whatever reason, goes unheeded. The consequences for the adviser-client relationship — quite apart from the client’s financial wellbeing — can be very serious.

In a new book, neuropsychologist Dr Moira Somers examines why it happens and, crucially, what advisers can do to try to prevent it. The book is called Advice That Sticks: How to give financial advice that people will follow.

In this interview, Dr Somers talks about the book and her motives for writing it. She also gives some practical advice to advisers who want to understand their clients and their behaviour better.

Briefly, Dr Somers, could you explain your interest in behavioural finance and how you came to write this book?

As a neuropsychologist, I find people, their motivations, and their decision-making to be a source of endless fascination. One of the most interesting aspects of being human, I find, is our struggle to do the right things for our lives, and to deal with the tension between what is appealing in the short run versus what is important in the long run. I’ve been lucky to be able to spend an entire career observing and treating this phenomenon in business settings, in healthcare, and now in the domain of finance. I wrote the book to help financial professionals get better at dealing with the personal side of their work. Too much excellent financial advice lands on deaf ears, or falls by the wayside after just a few weeks of half-hearted implementation, and I wanted to prevent that problem.

In your experience, what are the main reasons why advice doesn’t stick, and what can financial advisers and financial planners do to stop that happening?

Advisers inadvertently contribute to the problem of financial non-compliance, I’m afraid. The chief problem is that advisers talk far too much — they hog the airtime that should be given over to clients. Research shows that client satisfaction is directly related to how many minutes the client spends talking in a meeting. But all too often advisers feel that they have got to impress or win over the client (especially in the initial meetings), and unfortunately they just don’t shut up long enough to get to know the client’s real concerns in reaching out to them.

You’re a senior faculty member at the Sudden Money Institute, and you’ve delivered a keynote address to the National Football Players’ Association. We see so many celebrities and lottery winners squandering their wealth. Why do you think that is?

I think we all have a degree of schadenfreude in us, a tendency to take a weird sort of solace from other people’s misfortunes, especially if they’ve fallen from great heights. And so we are far more likely to hear news stories about the celebrities who screw up than about the ones who quietly and effectively steward their resources. That being said, the squandering of wealth happens across the wealth spectrum. It can happen because of generally low levels of financial literacy, something that is a growing problem in Western developed society. If people never acquire the skills to manage smaller amounts of money, what will happen when they are given huge amounts of it to manage on their own? The lucky ones get put in touch with technically skilled and emotionally intelligent advisers who help them hone into their deepest values, develop financial know-how, prevent regrettable decisions, and facilitate the enjoyment and preservation of that good fortune for generations to come.

In your book, you look at the different reasons why people seek financial advice. And some of them are quite surprising, aren’t they?

Yes, I thought so! It’s typical for financial advisers to assume that people are just wanting to find a way to maximise return and minimise risk. But the reasons are often much more emotional ones. Among the things that clients want are to reduce decision-making complexity, increase their confidence, receive encouragement that they’re on the right track, and generally walk away feeling more settled than when they walked into your office.

So, those are the reasons why people use advisers. Presumably, then, you would say that it makes sense for advice firms to craft their marketing and their service delivery around those reasons?

Yes! If we’re going to help people change their dealings with money — how they earn, spend, save, invest, give, and even talk about it — then we need to have a deep understanding of what motivates them. The firms that craft their messages accordingly are going to win clients.

Would you agree that there’s a growing awareness in the profession now that advisers need to pay more attention to behavioural finance? Or do you feel that it isn’t happening fast enough?

The industry is getting better on a variety of levels, including working on diversity issues, increasing transparency, setting up better defaults on critical items such as opting-in versus opting-out of pension enrolments, etc. But there is still a long way to go in terms of teaching critical skills in communication, warmth, and working with clients who are stressed, unmotivated, greedy, incommunicado – the whole gamut of troubling and tricky behaviours that advisers encounter every week in their office.

Are there any particular books you would recommend to advisers who want to lean more about behavioural issues?

Anything written by Dan Ariely or by Chip and Dan Health is worth reading many times over. These are general resources on how to make better decisions in all areas of life. Moving into the financial advising domain, in particular, I can’t say enough about Courtney Pullen’s book, Intentional Wealth, which identifies the best practices of high net worth families and their advisers. Any of the resources coming out of the Financial Transitionist Institute are just golden. I list a number of other recommended resources on my website at MoneyMindandMeaning.com

There’s an ongoing debate in the profession about the extent to which financial planners should get involved in areas that aren’t specifically financial. Some welcome that, while others say it’s gone too far. What’s your view?

The complaint I hear most often is, “I’m not a therapist, and I don’t want to be one!” I understand the frustration that prompts such an exclamation, and I respect the desire for advisers to stick with their knitting rather than get muddled up in volatile family problems. My general feeling is that advisers do need to develop some of the same skills that therapists have, including warmth, compassion, good boundaries, and excellent communication skills. That just makes good business sense if you’re hoping to have the kind of practice that will allow you to attract and retain clients for decades to come. But advisers also need to cultivate a great list of psychologists, physicians, estate attorneys, etc. so that they can safely place hurting clients in good hands. That’s not just ethically sound — it’s also good for business.

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