Adviser as Partner, Not Parent

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Recently, Amy Mullen (my daughter and VP of Money Quotient) pointed me to an article she liked and shared a letter she had sent to its author, Frank Jaffe, a CFP® in Roseland, N.J. In his article, “Playing Catch Up,” Frank posed the question that is plaguing many advisers: “How do we help baby boomer clients who don’t have enough money to retire?” He explained that most of his clients only need tactical advice, such as tweaking their asset allocation or increasing their 401k contributions, in order to meet their retirement goals. However, others need to make radical behavioral changes (e.g., reduce spending, downsize housing, increase income) to come anywhere close to making their numbers work.

Frank also observed that behavioral change is much more difficult for clients than tactical change, and requires advisers to step outside of their comfort zones. That’s because it is hard to communicate the stark reality of a dire financial situation and to outline remedies in a way that both encourages the client and motivates commitment to change. His advice is to first help these clients establish short-term goals that will get them moving in the right direction. Once they have made progress and increased their confidence, baby boomer “catch-up” clients will likely be ready to make bigger changes that will put them on the path to long-term financial security.

In Amy’s letter to Frank, she thanked him for his article and noted her complete agreement that behavioral change is the biggest obstacle to helping individuals achieve success in their financial lives. She also observed that one of the most challenging aspects for the adviser is to “raise the client’s level of awareness of the need for change without falling into a parental position … which often times leads to increased resistance to make change.” She continued that the change process will be more successful when the clients themselves identify the necessary action steps and, most importantly, link those steps to their core values. One of the easiest ways to do this, Amy wrote, is to guide clients through a process of identifying and clarifying what they care about most:

For this to work correctly, it needs to be an actual process where they explore, reflect and personally document what gives them intrinsic reward. This process doesn’t have to take a long time, but it can’t just consist of asking the question, “What are your values?” because most have never taken the time to really think it through and give an accurate answer. Once an individual has a clear understanding of what brings happiness to their lives and what is most important to them, making changes—in order to retain these values—won’t seem like difficult sacrifices any longer. The individual will then be internally motivated to stick with his/her plan and the adviser can position him/herself as a partner and not a parent.

This aligns with the premise of Nudge: Improving Decisions about Health, Wealth, and Happiness, which was named “Best Book of the Year” by the Economist and Financial Times. In this treatise on behavioral economics, authors Richard Thaler and Cass Sunstein demonstrate that sensible “choice architecture” can successfully nudge people toward the best decision without restricting their freedom of choice. They further explain that everyone who operates in an advisory capacity has the responsibility to be “a choice architect” and to present options in a context that the individual understands and can clearly identify the best path to take. “Nudges are not mandates,” they explain, but rather interventions that assist individuals in making decisions and taking actions that are in their own best interest.

Carol Anderson
Money Quotient
Poulsbo, Wash.

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