Professor of Financial Planning notes that advisory teams may want to start adding psychologists to their circle of influence as retirees struggle
Each month at WP we offer a slate of articles and content pieces that go deep on a particular topic. This February, we're focusing on retirement.
In a limited way, around questions of retirement, advisors have become a bit like librarians. Not because of the record keeping needs mandated by CFRs, but because they are doing far more than they initially thought they might. Librarians, trained record keepers, have become mental health practitioners and shelter providers amid the ongoing crises of homelessness in Canada. Advisors, for their part, are now reckoning with their clients’ needs beyond just monthly cashflow and investment returns. Retired and retiring Canadians are facing crises of confidence, social connection, and health. The recent Ageing in Canada Survey from the National Institute on Ageing (NIA) exposes those crises acutely. For advisors left to handle those crises for their clients, the expertise that comes with a CFA seems too narrow to meet this moment.
Dr. Tanya Staples is a Professor of Financial Planning and Academic Researcher t at Conestoga College Institute of Technology and Advanced Learning (ITAL). She has seen how the wealth management industry went from product sales and stock picking to full service financial planning and advice. Now, however, retired and retiring Canadians are struggling in areas beyond just their finances. The NIA study found that only 57 per cent of Canadians over 50 are confident about their retirements, 43 per cent are at risk of social isolation, 20 per cent are facing poverty-level standards of living, while 32 per cent still lack a regular primary health care provider. Staples notes that the report, while broadly representative of Canadians over 50, is not generalizable as respondents were selected from an opt-in online panel rather than a true random sample. Nevertheless, it can be instructive for advisors. Across almost all metrics studied by the NIA, those with access to savings, better income, and financial plans tended to have better outcomes. Staples argues that advisors must now upskill to meet these more nuanced needs, for the benefit of their clients and for their bottom line.
“The more we understand the qualitative factors of our client, the better we can help them on the quantitative side. I think when we only focus kind of singularly on wealth, all those other aspects of our clients go elsewhere. And the minute that they see someone else out there who is willing to provide some of those additional services, they'll be gone,” Staples says. “It's not difficult for people to find someone to manage the investment piece. But where the value is added ishelping Canadians figure out what they're going to do.”
Staples stresses how existentially challenging the process of retirement can be for many Canadians. She frequently notes that as children, students, and employees most of us spend our lives doing what others tell us to do, be they our parents, teachers, or bosses. On the first day of retirement, we wake up with nobody telling us what to do. That level of independence and decision making can be daunting for most people, especially when combined by the overhanging sense that what you’ve saved for retirement must last the rest of your days. Financial planning, she says, can help manage those challenges, but the discipline could benefit more from skills related to behavioural finance and even financial therapy.
Staples notes that the US and UK both have designations or certifications related to financial therapy (FTA, FT-UK) where specialists are trained to fully grasp and help with the psychological response people have to money. She adds that the CFP designation has now added the requirement of a behavioural finance component, with training that covers the heuristics and biases that both investors and advisors can carry with them. While Staples isn’t calling for advisors to go and get psych PhDs, she argues that a deeper understanding of psychological principles can benefit advisors as they encounter their clients’ emotional relationships with money.
As the scope of advisors’ work has expanded, their referral networks have too. Staples says that adding some psychological professionals to that referral network could be helpful, especially if they are specialists in financial counselling. Those professionals can work with pre-retirees to unpack how they feel about spending and saving and help them make the change in retirement from accumulation to decumulation. Staples argues that the work these specialists provide can be so valuable that larger advisory teams should consider adding a financial psychologist onto their staff.
For advisors who want to take the first step into the psychological sides of their clients’ finances, Staples notes that beyond engaging in some of the educational programs offered in the US on the subject, advisors can work to develop their capacity as empathetic listeners. That practice, which maintains objectivity while seeking to more fully grasp a client’s perspective, can help inform how an advisor approaches these questions of finance. Advisors, she says, can watch for hesitation among their clients, especially around the idea of spending their retirement savings. Advisors can begin to widen their skills, she says, through engagement, empathetic listening, and awareness of when money is more than money. Staples also suggests advisors become familiar with the research on Money Scripts and how to use them, as it relates to underlying drivers of financial decision-making.
“There are lots of tools out there that even if planners are not psychologists, they can absolutely access,” Staples says. “There is also another really interesting text called Communication Essentials for Financial Planners. It really breaks down how the messaging between advisor and client happens, and where in that messaging communication breaks down, and what to watch for. It talks about difficult conversations. It talks about, you know, ways to approach emotional conversations that you're not 100 percent sure whether the response will be positive.”
