Financial Planning Counseling Skills

By Jamie Lynn Bryam, Megan McCoy, Michelle E Kruger and John E. Grable

Many of the day-to-day tasks performed by financial planners fall within the broader scope of counseling. Financial planners often face counseling like-incidents in their work. As a result, financial planners need a working knowledge of client and financial planner attitudes, values, and biases. Financial Planning Counseling Skills specifically describes how a financial planner can blend counseling, psychological, and behavioral finance theories, models, and approaches into their practice with clients. Discover:

• Chapter Applications that include testing materials, such as short answer questions, essay questions, matching charts and sample interview questions
• A running case study that covers topics for each of the ten chapters that apply principles learned in the chapters
• Charts that demonstrate how an office environment should be structured to positively influence a client's psychology
• Each chapter contains frequent discussion points set off in boxes for easy identification that provide practical guidance on points discussed in the text
• Key terms are highlighted and defined so students can easily find and understand the terms

Topics Covered:

• The application of counseling theory to the practice of financial planning
• Understanding the importance of using theory in practice and demonstrating how a financial planner can use counseling theories to build client trust and enhance client interactions
• How to establish, manage, and maintain client relationships, including how to build a trust-based client relationship
• How to communicate effectively with clients, especially how to obtain deeper insight into a client's values, goals and other valuable information and the importance of nonverbal communication
• Reflective listening skills, including how it allows planners to gain information and understand the entirety of the client's situation
• The importance of questioning skills, including open and closed-ended questions
• The issues with heuristics, or mental shortcuts that allow a decision-maker to process information or make decisions more quickly
• The role of a financial planner in identifying and monitoring client biases and how they impact client's decision making
• Sources of money conflict, including areas of potential conflict between spouses and family members, as well as money taboos and differing money personalities
• How financial planners can communicate the importance of agreeing on financial goals and objectives
• Discussion of the most common money disorders, including compulsive shopping, gambling, workaholism, hoarding, and financial denial, including the symptoms of these disorders and how a financial planner can support clients with these disorders
• Description of relational money disorders, such as parental manipulation and financial enabling
• Discussion of financial infidelity, including the impact of addiction
• How a financial planner can deal with clients' personal crises such as loss and grief
• How financial planners can mediate the impact of financial shocks by providing financial education

• Language: English
• Publisher: The National Underwriter Company
• Release date: Apr 27, 2023
• ISBN: 9781954096981

Book preview

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ABOUT THE AUTHORS

Jamie Lynn Byram, Ph.D., CFP®, AFC®

Dr. Jamie Lynn Byram earned her Ph.D. in Financial Planning at the University of Georgia (UGA). She graduated with a B.A. in both history and political science from Samford University in Birmingham, AL. Dr. Byram also holds four master’s degrees: a Masters of Business Administration from The University of Alabama, Birmingham, a fifth year specialist in Education from The University of Alabama, Birmingham, a Masters of Divinity from Asbury Theological Seminary, and a Masters in Science–Financial Planning from the University of Alabama. Dr. Byram began teaching at the university level in 2007 at The University of Missouri–Columbia, and then at The University of Southern Mississippi, where she served as Program Director of the University’s financial planning program. Dr. Byram has also held teaching positions at the University of Georgia and Virginia Tech. After seventeen years of teaching, Dr. Byram pivoted to an industry role and is currently a Senior Financial Planner for Locker Financial Services, a Fee-Only comprehensive financial planning firm located in Verona, New Jersey. Dr. Byram also owns her own financial counseling practice, Peace Within Financial Counseling, LLC, and serves as the Financial Editor of Top Dollar, a newsletter published by Ebix, Inc. Her research interests include financial psychology, financial behaviors within marriages and partnerships, and financial literacy. Dr. Byram is a Certified Financial Planner TM professional and an Accredited Financial Counselor® professional.

Megan McCoy, Ph.D., LMFT, AFC®, CFT-I™

Dr. Megan McCoy, Ph.D., LMFT, AFC®, CFT-I™ is an Assistant Professor at Kansas State University’s personal financial planning program. Dr. McCoy holds a B.A. in Psychology from The University of North Carolina and an M.A. in Marriage and Family Therapy from Drexel University. Dr. McCoy also attended the University of Georgia, where she earned a Ph.D. in Human Development and Family Science with an emphasis in Marriage and Family Therapy. She is a licensed Marriage and Family Therapist, an Accredited Financial Counselor®, and a Certified Financial Therapist-I™. She volunteers on the Financial Therapy Association’s Board of Directors and is the co-editor of the Financial Planning Review. Her research interests focus on financial therapy, financial well-being, and financial communication, as well as diversity, equity, and inclusion issues. She has published over forty articles in top-tier mental health, family science, financial counseling, and financial planning journals. This year her research has won her research awards through the National Council of Family Relations and Financial Therapy Association. Dr. McCoy has been awarded grants from the Financial Planning Association, the National Endowment for Financial Education, and FP Canada to continue research in this area. Dr. McCoy has been featured as a financial well-being expert on the Today Show, NPR, BBC, the Wall Street Journal, and many other media outlets.

Michelle Kruger, Ph.D., CFP®

Michelle Kruger earned her Ph.D. in Financial Planning at the University of Georgia (UGA). She graduated magna cum laude with a B.B.A. in Finance from the Terry College of Business at UGA. After serving as an Assistant Professor of Finance at Loras College, Michelle pivoted to an industry role. She is currently a Senior Financial Planner at Elwood & Goetz Wealth Advisory Group, a fee-only, comprehensive financial planning firm located in Athens, Georgia. Michelle is also currently a part-time Lecturer at the University of Georgia focusing on preparing students for careers in financial planning. Michelle has taught classes in practice management, computer applications, and other advanced financial planning and finance courses. Her research interests include financial planning interventions, risk tolerance assessment, and behaviors associated with building wealth. Dr. Kruger also conducts research through the Financial Planning Performance Lab, the nation’s only applied clinical facility designed to obtain evidence about the effectiveness of the financial planning process. She has served as a financial counselor at the Aspire Clinic, an interdisciplinary teaching and research institution, applying marriage and family therapy theories and techniques to her work with financial clients.

John E. Grable, Ph.D., CFP®

Professor John Grable teaches and conducts research in the Certified Financial Plannerä Board of Standards Inc. undergraduate and graduate programs at the University of Georgia where he holds an Athletic Association Endowed Professorship. Prior to entering the academic profession, he worked as a pension/benefits administrator and later as a Registered Investment Adviser in an asset management firm. Dr. Grable has served the financial planning profession as the founding editor of the Journal of Personal Finance and co-founding editor of the Financial Planning Review. He is best known for his work in the areas of financial literacy and education, financial risk-tolerance assessment, behavioral financial planning, and evidence-based financial planning. He has been the recipient of numerous research and publication awards and grants and is active in promoting the link between research and financial planning practice where he has published over 150 refereed papers, co-authored several textbooks, co-authored a financial planning communication book, and co-edited a financial planning and counseling scales book and a graduate-level personal finance book. Since earning his Ph.D., Dr. Grable has served on the Board of Directors of the International Association of Registered Financial Consultants (IARFC), as Treasurer and President for the American Council on Consumer Interests (ACCI), as Treasurer and board member for the Financial Therapy Association, and as an Academy of Financial Services board member. He has received numerous awards, including the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services, the IARFC Founders Award, the Dawley-Scholer Award for Faculty Excellence in Student Development, and the ACCI Mid-Career Award.

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INTRODUCTION

This book, Financial Planning Counseling Skills, was conceptualized and written to provide insight into what the Certified Financial Planner Board of Standards, Inc. (CFP Board) and other professional financial planning organizations and regulatory bodies call the Psychology of Financial Planning. It specifically describes how a financial planner can blend counseling, psychological, and behavioral finance theory, models, and approaches into their practice with clients.

Financial Planning Counseling Skills is based on CFP Board’s most recent practice management survey. The results from the latest survey were used by CFP Board to draft a principal knowledge topics list. This list reflects the current practice processes and procedures of those working in the financial planning profession. The list also drives what is tested on the national CFP® certification examination. In 2021/2022, CFP Board added a category called the Psychology of Financial Planning. This new category is comprised of the following five domains and sixteen subtopics:

Client and planner attitudes, values, biases

Analyze a client’s degree of risk tolerance and loss aversion and ensure recommendations are consistent with a client’s risk propensity, attitudes, composure (e.g. past behaviors during market corrections), capacity, knowledge, and needs.

Explain how a client’s psychology, background, preferred learning style, and values (socially conscious investor, etc.) impact the financial planning process.

Explain how a client’s values, including cultural and religious values and attitudes, may impact their goals and the financial planning process.

Behavioral finance

Identify how cognitive biases and heuristics can impact financial decision-making.

Describe how a client’s psychology, such as their financial comfort zone, socialization, money beliefs, and past financial experiences and behaviors impact their objectives, goals, understanding, decision-making, and actions.

Sources of money conflict

Identify a client’s motivation for achieving their financial goals.

Explain to the client the consequences of a lack of transparency with spouse or family when making financial decisions.

Identify areas of potential financial conflict between spouse and/or family.

Communicate the importance of agreeing on financial goals and objectives with a spouse and/or family.

Identify situations in which money may be used as a means of undue influence, control or abuse in relationships (e.g. power imbalances, financial abuse, and financial enabling).

Principles of counseling

Explain the applications of counseling theory to financial planning practice.

Demonstrate how a planner can develop a relationship of honesty and trust in client interaction.

Select appropriate counseling and communication techniques for use with individual clients.

General principles of effective communication

Assess the components of communications, including verbal and non-verbal communications.

Apply active listening skills when communicating with clients.

Select appropriate counseling and communication techniques for use with individual clients.

The psychology of financial planning domains highlights the need for financial planners to exhibit a working knowledge of client and financial planner attitudes, values, and biases. The domains represent topics ranging from behavioral finance, sources of money conflict, counseling principles, communication principles, and crisis management. The addition of the psychology of financial planning category to the topic list provides direct evidence that financial planning has emerged from a narrowly focused product delivery model to a profession based on prescribed standards of conduct and practice, a focus on the client, and an acknowledgment that helping a client achieve financial goals goes beyond mathematical modeling and standardized products.

Those who are interested in taking the national CFP® examination will find the information in Figure 1 to be useful. As illustrated, the psychology of financial planning category represents approximately 7 percent of questions on the examination. Without a thorough understanding of the domains and subtopics in each domain, it will be difficult to pass the examination.

Figure 1. Topic List Weights for the National CFP® Examination

While elements of the psychology of financial planning practice management category have been published in journals, books, blogs, and other media sites, it has traditionally been difficult to find a single source that brings all the domains and subtopics together in a concise book that can be easily incorporated into classes across a financial planning curriculum or quickly read by a practicing financial planner. The purpose of Financial Planning Counseling Skills is to fill this need.

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HOW TO USE THIS BOOK

The CFP Board of Standards, Inc.’s introduction of client psychology concepts and learning outcomes into the financial planning curriculum in 2022 caught many academic programs and some financial planning instructors off guard. While the importance of psychological concepts in shaping the practice of financial planning is universally acknowledged, very few academic (this includes certificate, undergraduate, and graduate programs) programs currently have dedicated courses or elements within classes that specifically deal with client psychology concepts, topics, and issues. Many, if not all, CFP® program directors have scrambled to find ways to meet CFP Board’s learning outcome requirements without altering core courses. Today, there is a gap between what CFP Board requires students to learn and apply and what has traditionally been taught in programs.

One fundamental issue faced by nearly all financial planning academic programs is the lack of institutional flexibility in adding new classes or significantly altering existing classes. Very few academic programs have the ability to add a new class focused on client psychological concepts, counseling theory, or behavioral finance. With this reality clearly in mind, this book was written to help instructors working in financial planning programs (and practicing financial planners who want to jumpstart their knowledge about the psychology of financial planning) fill the learning outcome assessment gap in their programs. This book is comprised of the following ten chapters:

Applications of Counseling Theory

Developing and Strengthening Client Relationships

Communicating With Clients

Risk Tolerance and the Process of Risk Profiling

Client Psychology: The Role of Cultures, Values, and Personality

Behavioral Finance

Dealing with Money Conflicts

Money Disorders

Relational Money Disorders

Supporting Clients Through Personal and Financial Crises

This book was written to be used across a student’s experience in a financial planning degree or certificate program. (Of course, the book can be used in an existing or new client psychology class as well.) The following map shows how each chapter can be incorporated into an existing financial planning curriculum:

Figure 2. Chapter Map to Financial Planning Curriculum

In addition to helping program directors and financial planning instructors fill gaps in their curriculum, this book was also conceptualized to be a useful addition to what financial planners use to improve their work with clients. The book was written to be:

Applicable to the lives of financial planners and students;

Accessible and engaging; and

Aligned with what a student needs to know to be prepared for the national CFP® examination.

As a team of authors who not only teach financial planning but also have practiced professionally, it is our sincere hope that you find this book to be beneficial in your work as a financial planner. While we acknowledge that a book could be written on each domain, and on many of the subtopics, we hope that what is presented here provides a brief yet useful insight into the interesting and ever-expanding world of counseling and client psychology.

Jamie Lynn Byram, Ph.D., CFP®, AFC®

Megan McCoy, Ph.D., LMFT, AFC®, CFT-I™

Michelle Kruger, Ph.D., CFP®

John E. Grable, Ph.D., CFP®

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Applications of Counseling Theory

1.1 INTRODUCTION TO COUNSELING THEORY

Many of the day-to-day tasks performed by financial planners fall within the broader scope of counseling, which is defined as a purposeful activity focused on building a professional relationship with another individual, family, or group that empowers attitudinal and behavioral change leading to goal accomplishment for the other party.¹ A counselor is a specifically trained, and often certified, professional who helps others assess their situation, evaluate options to meet challenges, and facilitate improvements in wellness. Like counselors and mental health professionals, financial planners are often compelled to deal with emotionally ladened issues and client conversations. It is not uncommon for a financial planner to mediate between family members when conflict arises around financial decisions or be asked to provide guidance about important life transitions.² As such, it behooves financial planners to understand and integrate one or more evidenced-based theoretical approaches into work with clients.

Financial planning has traditionally been practiced without a primary theoretical foundation; however, this lack of theoretical focus is changing as regulators and certification boards push financial planning professionals to adopt and adapt counseling and other theories as guideposts for practice.³ The purpose of this chapter is to introduce what is meant by the word theory and to describe the leading theoretical frameworks and models that are widely used in the financial planning profession. After reading this chapter you will be able to explain the applications of counseling theory to the practice of financial planning, understand the importance of using theory in practice, and demonstrate how a financial planner can use counseling theories to build client trust and enhance client interactions.

1.2 THEORIES: DEFINITION AND CATEGORIZATION

A conservative estimate is that more than 300 counseling theories have been developed over the past 100 years.⁴ While many of these theories have been invalidated or found to be marginal in application, a few serve as the foundation for the practice of counseling and providing therapeutic help to others. Before describing some of these theories and theoretical perspectives, it is important to have a foundational understanding of what is meant by the term theory. A theory is a set of concepts and propositions that describe, explain, and/or predict a phenomenon or behavior. A theory can also be thought of as a set of interrelated ideas that can be used to systematically organize abstract concepts into a set of testable hypotheses that can be used to add clarity to a process or problem.⁵ Theories are developed either inductively or deductively. A theory built on inductive reasoning uses multiple observations to build broad generalizations. Theories founded on deductive reasoning start with generalizations, which lead to hypotheses that are then tested. In practice, theories can take on a variety of forms ranging from frameworks designed to explain causation to generalized conceptualizations to intervention paradigms. As outlined by Asebedo⁶ in Table 1.1, theories can be grouped by definition, scope, and abstraction.⁷

Table 1.1. Types of Theories: Definitions, Scope, and Abstraction