Brendan Frazier is the founder of Wired Planning and The Human Side of Money Podcast. He sat down with Hannah Moore, CFP®, to discuss the controversy around behavioral finance and the unavoidable role it plays in every client interaction. They also discuss how we can all develop better behavioral coaching skills for mutually satisfying client relationships.

Behavioral finance is already part of your work

When you think of behavioral finance, do you think about persuading your clients to stay invested through a down market? If that’s what comes to mind, Brendan Frazier says you can thank a 2014 study done by Vanguard. It quantified the value that advisors add to their clients’ portfolios and put a heavy emphasis on helping clients “stay the course.”

Although inspiring discipline is an important part of any client-advisor relationship, Brendan says that behavioral finance has a lot more to offer and can actually ease day-to-day struggles in your work with clients. One of the common threads he’s seen and heard from other advisors is that they really wish they had a degree in psychology. Maybe you’ve even found yourself thinking, “I feel like I'm more of a therapist than I am a financial advisor” — and Brendan had the same experience.

Whether you’re baffled by a client who won’t move on something that seems perfectly aligned with their values or you are struggling to gain their respect and trust, behavioral finance is the key. This approach, according to Brendan, encompasses all of the skills that help you manage the relationship and help your clients follow-through on their goals.

“It’s really everything that gets somebody to do the things they know they need to do, in order to get where they want to go,” Brendan says. “It’s overcoming the mental and behavioral barriers that stand in the way.”

The most critical skill for connection and coaching

In its most basic form, behavioral finance is practicing very deep and intentional listening. Brendan considers it the ability to ask great questions, to ask them in a way that develops trust and likeability, and in a way that uncovers the information you need. It all stems from being able to listen actively, with curiosity and empathy. 

“There are brain studies,” he says, “that show that giving somebody the chance to talk about themselves lights up the same areas of their brain as eating chocolate and sexual activity. So if you can ask great questions and get somebody to talk about themselves, you're naturally creating a level of trust that you wouldn't get if you were just sitting there telling them about how great you are.”

The biggest struggle for most advisors is that they don’t spend enough time listening. Brendan references Advice that Sticks by Moira Somers, saying, “There's a direct correlation between a client’s satisfaction and the amount of airtime that they get. So the more they talk and the better you listen, the more connected they feel, and the more satisfied they feel with your services.”

How to develop your behavioral skills

The question is, how do you achieve that high level of listening? Brendan has some ideas. “Strive for a 90:10 listen-to-talk ratio, where you're listening 90% of the time, and talking 10% of the time,” he shares. You’ll probably land closer to 70:30 or 80:20, but that's the right range to help you deeply understand what your client cares about and give them the chance to feel seen and heard.

Brendan also explained that, if you can be a great listener, it will absolutely be a differentiator and a competitive advantage. It’s something that the majority of advisors aren't doing but really need to be doing well — so give yourself a leg up on the competition by listening.

How do you get clients to act for the future?

Many of us have struggled to get clients to act in the best interests of their future selves. Could behavioral skills help us get through? Brendan thinks so.

“There's this disconnect in our minds,” he says. ”Research shows that we see our future selves as nothing more than a stranger. So here we are, planning for 10, 20, or 30 years down the road for somebody that we don't really know or even care about that much. We're focused on ourselves in this moment, today.”

So, how do we do a better job of planning for that future person?

The best way to bridge the gap between your current and future self is to shorten the mental time horizon, according to Brendan. You can help your client get more clear on what they want at specific stages in the future. If a 45-year-old says, “I think I want to retire one day,” you ask, “What does that look like?”

You’ll probably hear things like, “I won’t work as much,” and “I’ll golf more.” You keep asking until they start getting into more specific details, like where they’re going to be playing golf, who they’ll be playing with, and whether they’ll be playing on family vacations.

“The more vivid and specific you can help them become about their future self, the more connected they feel to that person,” Brendan says. “There are actually studies that show a direct correlation between the people who are the best savers are those who feel the closest connection to their future selves.”

The other bit of human nature that Brendan thinks needs more attention in advising is called the End of History illusion. He says, “We all have a tendency to think that we're not going to change that much between now and 10 years from now.” But if you help a client look back and list all the things that have changed for them in the past 10 years, like marriage, starting a family, career or geographical moves, family losses, etc., it can give them perspective about what may change for them in the next 10 years.

Studies show that, over time, your preferences, goals, and wishes for your life shift. If we're helping people plan for goals in the future, we need to also take into account that change is inevitable. To make room for that natural shifting of goals, Brendan uses what he calls “the Amazon principle.”

He says, “Jeff Bezos is always asked, ‘What are you working on to stay on top of the world in 10 years and 20 years?’ And he says, ‘I get that question a lot. But I think that's the wrong question. I think the right question is, what are the things that we need to plan around that aren't going to change? What are the constants, the staples, that we know will still be true in 10 years?’”

For Amazon, the constants are that people will always want their goods low cost and delivered as soon as possible. So they plan around that, always.

What does that look like in financial planning? According to Brendan, it's not focusing on goals and preferences, because we know that those things shift. Generally, however, value-oriented desires remain stable. For example, your client’s passion to purchase a summer house may wane over the years, but his desire to have more time to spend with his family will probably remain steady. “Goals shift and values persist, for the most part,” Brendan states.

If you listen deeply, help your clients dream with detail, and keep their core values at the heart of your plans, you’ll build deeply satisfying relationships and an outstanding advising practice.

What You’ll Learn:

  • How you’re already practicing behavioral finance
  • What single, core skill is at the essence of great connection and productivity
  • How to develop your behavioral coaching skills
  • How psychology can help you take care of your clients’ future selves

In this episode of YAFPNW, Brendan Frazier and Hannah Moore, CFP® talk about:

Interested in following Brendan? Follow him on LinkedIn!