Why Financial Planning Research Doesn’t Matter (and What to Do About It)

Bradley T. Klontz, Psy.D., CFP®, is a founder of the Financial Psychology Institute™, an associate professor of practice at Creighton University Heider College of Business, and a managing principal at OCCAM LLC. He is an author/editor of several books, including Mind Over Money, Facilitating Financial Health, The Financial Wisdom of Ebenezer Scrooge, and Financial Therapy: Theory, Research, and Practice.

A few years back I attended a conference for financial planners where I bumped into an academic colleague who had just finished presenting his research to a crowded room of planners. I held this colleague in very high esteem. His research was innovative and vigorous. I was excited to see him at the conference and wanted to hear how his presentation went. To my surprise, he expressed frustration that his presentation was met with a lack of enthusiasm by the planners. His session was met with disinterest. He noticed participants walking out, not paying attention, and giving him the general sense that his findings were not important. In the question and answer portion, one planner challenged him on the relevance of his research to actual financial planning practice. Ouch.

My colleague noted that when presenting at academic conferences he had a very different experience. His research was applauded. It generated provocative and engaging dialogue, and was met with great interest and appreciation. He vowed in that moment to never present his life’s work and passion to another group of disinterested practitioners where he felt his research was devalued and misunderstood.

As an academic and researcher in financial planning myself, I understood his offense. Why volunteer to present research to a group of people who will misunderstand and devalue it?

Why Does Research Matter?

Recently I attended a discussion group with some financial planners. The topic for consideration was “why research matters.” When I heard the topic, I thought to myself, “Why does research matter? Are you kidding me?” My background as a clinical psychologist had left me fully indoctrinated as a disciple of research. I was trained in a practitioner-scientist model. Although I was trained as a practitioner, I was also trained to do research. I was trained to consume research. I was trained to use research to inform my work with clients. Without research, how can we truly know anything? Without research how can we know if an intervention works or causes harm? How would we know what intervention to use with which presenting problem? Without research, how can we know if a belief, behavior, or personality trait is typical or unusual? I joined the discussion group with an intense curiosity about the people who were exploring a question that I had assumed had been answered centuries ago.

What I heard both shocked and enlightened me.

The session started with the question: why does research in financial planning matter? One financial planner shared his opinion that most research in financial planning is useless in improving his ability to help a client reach their goals. Another planner stated that it is a waste of time to sit in a long presentation on research or read a lengthy jargon-filled academic paper that, at best, might yield one takeaway that was of limited value to her daily work with real clients. Other participants argued that research is important in the realm of investments and retirement planning, including helping planners determine appropriate asset allocations and retirement withdrawal rates. No one argued with that, but several planners agreed that investing is a very small part of their work with clients.

The general conclusion from this group of practitioners confirmed my academic colleague’s conference experience. For the most part, financial planning research doesn’t matter to financial planners. It is too obscure. It is too difficult to digest and even when digested, it is too unrelated to what concerns them most. For the most part, it does not inform financial planning practice.

As a financial planning practitioner, I shared their offense. Why care about financial planning research when it has little to no applicability in my work with actual clients?

As a profession, we have work to do in bridging the gap between financial planning research and practice. To be fair, this science-practice gap exists in many other professions, including psychology, which continues to struggle with generalizing laboratory research to real-world settings. That said, we are making some headway.

The Journal of Financial Planning, for example, is one of the few professional publications, in any field, that includes both peer-reviewed research and articles of direct relevance to practitioners. In this publication, academics are exposed to articles of immediate relevance to practitioners, and practitioners are exposed to financial planning research efforts. In recent years, FPA has invited researchers to present at conferences. The 2016 FPA Annual Conference in Baltimore had several academic research presentations on the schedule, giving researchers a platform where they could present their findings. And the FPA Theory in Practice Knowledge Circle is a group of academics and practitioners whose intent is to make strides building the bridge between just that—theory and practice. In addition, CFP Board is hosting its first academic research colloquium in 2017 and offering several research awards. While these efforts help bring academics and practitioners together, more can be done to bridge the science-practice gap.

How to Bridge the Gap

What follows are three recommendations based on my observations as both a financial planning practitioner and an academic to help bridge the science-practice gap, so that we can ensure that our financial planning research does matter.

Leave campus. What does an 18-year-old, single, childless, college freshman with a negative net worth have in common with a 67-year-old, married, parent and grandparent, retired CEO with a net worth of $3.5 million? Almost nothing.

Research is often done with college students. Why? Because researchers work in universities and have easy access to subjects who are sitting in their classes and are happy to fill out surveys for some extra credit. However, the typical financial planning client is more like the 67-year-old retired CEO than the 18-year-old student, so findings from these studies often aren’t very useful. One way to close the gap between science and practice is to conduct research on individuals who are more likely to be clients of financial planners. As a university-based researcher, it is much more difficult to get a sample of actual financial planning clients than to use students. However, when researchers venture outside of college campuses, their research will be much more interesting and relevant to practitioners.

Focus on practice, not personality. We have made great strides in our understanding of individual differences and their association with income, net worth, debt, and other variables. It adds to our understanding of the human condition to know that an internal locus of control is associated with higher net worth, money conflicts predict divorce, debt is associated with stress, and the college educated are more likely to have adequate retirement savings. However, how useful is this information for the practicing financial planner? It’s not. This same disconnect exists in psychology.

Most practicing psychologists are aware of the research on individual differences and how they are related to behaviors and outcomes. We took classes in these areas. However, this information is of very little value when a psychologist is in a meeting with a client. Research is most valuable for the practicing psychologist when it shows her which tools, techniques, or approaches are most effective in helping a client meet his or her goals. Thankfully, there have been decades of research showing the effectiveness of various psychological approaches to help alleviate human suffering.

Outside the realm of investing, our profession is in its infancy in terms of practice-based research. Although we have evidence to suggest that financial planners can improve a client’s returns, most practitioners will argue that return on investment is not their only or even primary client goal. We use a variety of tools without knowing whether they work. Even some of our most basic assumptions and practices are untested. For example, does a financial plan help a client meet his or her goals? If so, how, why, when, where, what kind, and for whom?

Perhaps the most exciting frontier in financial planning research lies in examining the effectiveness of financial planning itself. We need a researched, evidence-based toolkit of interventions if we are to be most effective in helping our clients reach their goals.

Practitioner, meet academic; academic, meet practitioner. Most research is conducted by academics who have little, if any, training or experience in working with actual clients. When they aren’t studying college populations, many rely on large, national, secondary datasets, which provide limited data but are easy to access. They then explore associations between client demographics, personality factors, and financial outcomes. Results from these datasets are of limited value for practitioners.

So how do we make financial planning research applicable to financial planners? Ask them. What concerns them most about their clients? What would they most like to know about clients? What techniques do they use with clients, and which ones seem to be the most helpful? For financial planning research to matter, research ideas need to be generated by, or in collaboration with, practitioners. This is where forums like the FPA Theory in Practice Knowledge Circle can be invaluable.

The financial planning science-practice gap is narrowing, however we have a long way to go. Only by expanding the dialogue and collaboration between financial planning practitioners and researchers can we truly make financial planning research matter. 

Learn More: Bridge the Gap with the FPA Theory in Practice Knowledge Circle

The FPA Theory in Practice Knowledge Circle brings together financial planners and academic researchers in virtual and in-person meetings to share ideas.

Planners are encouraged to inform academics on the questions and challenges keeping them from better serving their clients.

Academics are ncouraged to seek the advice of planners on how to best approach research that will present practical and valuable solutions.

Log on to Connect.oneFPA.org and click on "Knowledge Circles" to learn more and join the next Theory in Practice discussion scheduled for October 17, 2016, 2pm Eastern.