Wharton@Work

January 2019 | 

Understanding Client Psychology Leads to Better Financial Outcomes

Understanding Client Psychology Leads to Better Financial Outcomes

You’ve probably seen the flurry of ads on TV for online stock trading and now, increasingly, for robo-advisors that automatically construct an investment portfolio at a fraction of the price that a traditional broker might charge.

For the thousands of nonrobotic financial advisors and financial planners, they’re stiff competition. The rise of artificial intelligence, or AI, has created the necessity, as well as the opportunity, to provide a deeper relationship with clients while making the most of technology.

Those changes have inspired experts from the Wharton School to work with the CFP Board’s® Center for Financial Planning to design a first-of-its-kind program, Client Psychology, to help financial planners and advisors reinvent their practices. They will learn how to become more client-centered by using the latest advances in behavioral finance, clinical psychology, and human sciences.

Professor Christopher Geczy, academic director of the Wharton Wealth Management Initiative and co-director of this new program, says financial advisors “have no choice but to do this,” as the big-name investment firms move rapidly toward low-cost commodification and more customers latch on to a do-it-yourself approach.

“Cheaper is better, but if you’re taking the advisor out of it, that’s not so good,” Geczy says of the fast-changing financial services industry. Client Psychology aims to help financial professionals better understand the biases, behaviors, and perceptions that impact client decision making and financial well-being. Such awareness, says Geczy, will help advisors and planners build closer bonds with clients that can ultimately make the customer happier — and more prosperous.

Geczy notes that the three-day program, offered in Philadelphia and San Francisco in 2019, is an exciting new area for mid-career education at Wharton: “It’s for any advisor who touches a client or even supports a client in the background, and represents a broadening of the whole notion of financial wellness.” The program is also eligible for continuing education credit from the CFP Board.

Geczy is working closely with Charles R. Chaffin, EdD, the director of academic programs and initiatives for the CFP Board’s Center for Financial Planning and editor of a new book on which the Wharton-CFP Board program is designed. Chaffin compares the challenges facing today’s financial planners to the plight of the travel agent in an era when websites like Travelocity or Orbitz can quickly and cheaply locate flights or hotels and make reservations.

Chaffin points out that the job of travel agent has not died but rather changed, as those who remain in the field build personal relationships with their clients and recommend dream vacations that a computer can’t. Financial planners and advisors, Chaffin argues, will save their profession with the same type of shift.

“The travel agent still exists — 40 percent of the workforce is still there — but it’s a higher interpersonal element where it’s calling up Jen and saying, ‘I know your family really loved that bed and breakfast in the Northwest last year, here’s what I’m thinking for this year’ — as opposed to booking her ticket,” Chaffin explains. “I think that’s where we’re going in financial planning.”

Geczy says the program will answer questions such as “How do you understand the potential to take risks? How do you understand personality and how it relates to outcomes and wellness? How do you best interact with clients? How do you best communicate? And how do you have a client for life and deliver the best value?”

Chaffin and Geczy hope that professionals who participate will gain a better sense of how to steer their clients through major life events and times of financial hardship. Chaffin notes, for example, that often when a person receives a devastating medical diagnosis, one of the very first phone calls that he or she makes is to a financial advisor, to address the worry that his or her family will be provided for.

The program includes aspects of neuroscience — how brain chemistry can affect financial decision making — as well as more traditional behavioral finance, evidence-based decision making, communication skills, investing habits across generational lines, and elements of clinical psychology including spending, saving, and money disorders. The curriculum aligns closely with Chaffin’s strong belief that financial planners and advisors need to adjust to working with a more diverse pool of potential clients — as younger people, as well as more women and people of color, seek out better guidance on investing.

“What is important for financial planners and advisors to understand is that the lens through which the client sees the world is different from yours,” says Chaffin. “You need to be responsive to that. You need to listen and find ways to better understand.”

Ultimately, the goal of the program, is “not to make planners become a psychologist by any means,” says Chaffin. “But that being said, there’s an element of counseling and marriage and family therapy. All these things under the banner of client psychology are really critical.”