The benefits of behavioural coaching in financial planning

Our relationship with money develops from a very young age, and we often carry those behaviours into our adult life.

In fact, reports that we form many of our adult financial habits by the age of seven.

Once a person has established a certain habit, it can be very challenging to break. According to Scientific American, the specific time it takes a person to change a habitual behaviour varies but it averages 66 days.

This could mean that clients who develop less-than-optimal financial patterns when they’re young could be making decisions that work against their financial plan.

That’s why behavioural coaching – understanding the psychology behind a person’s financial decisions and working to change their habits – is a crucial part of financial planning.

Indeed, a recent poll by Professional Adviser found that 54% of industry respondents said there was more need for research into the influence of psychology on client decision-making.

Read on to learn why behavioural coaching is so beneficial for your clients.

Clients may benefit from understanding their relationship with money

Everybody has a unique relationship with money. Some people find it incredibly stressful and prefer not to think about it, while others want to track and control every penny they spend.

We all have our own specific life goals that we want to achieve with our wealth too.

It’s important for your clients to understand their relationship with money when developing a financial plan as they may be able to identify certain areas that need work.

For instance, if they tend to be impulsive with their spending, they might find it difficult to save for the future. Alternatively, some people might take a short-term approach to their wealth, and this could mean they don’t have an estate plan in place.

In many cases, your clients might not understand why they have gaps in their financial plan or struggle to meet certain goals.

Fortunately, behavioural coaching can help your clients explore their relationship with money and give them more control over their decisions.

We can help clients develop positive financial habits

Simple habits could make it easier for your clients to meet their medium- to long-term financial goals.

Saving is a prime example of this. It’s typically beneficial for clients to “pay themselves first” by contributing to savings and investments for the future before spending elsewhere.

Creating and regularly reviewing a budget is another simple but effective habit that can give your clients more control over their wealth.

It may be sensible to contribute more to pensions or investments when their earnings increase too.

Yet, if they didn’t develop these habits earlier in life, they might find it more difficult to manage their finances.

The right coaching can help your clients adapt their financial behaviours and change their habits over time, so they are better equipped to achieve their goals.

Behavioural coaching could identify and eliminate cognitive biases

There are several cognitive biases – systematic deviations from rational thinking – that could affect your clients when they are building and managing their wealth.

These thought patterns, often developed over years, can cloud their judgment and cause them to make decisions that don’t align with their financial plan.

Common cognitive biases include:

  • Loss aversion – feeling the pain of a loss more acutely than the pleasure of a gain, often leading people to be overly cautious.
  • Confirmation bias – a tendency to seek out information that confirms an existing belief and ignore data that disputes it.
  • The “house money” effect – a tendency for investors to take greater risks when reinvesting their gains as they don’t perceive it as “their money”.

These are just some of the biases that could cause your clients to make sub-par investment decisions, sometimes without realising.

We can work with your clients to identify these patterns and help them avoid letting cognitive biases guide their decisions in the future.

We can help clients remain calm during a period of volatility

Behavioural coaching has an especially important role to play during periods of market volatility. When markets fall, it’s common for investors to panic and make rushed decisions. In this situation, your clients may decide to sell investments to avoid further losses.

However, this could see clients turn a theoretical loss into a real one. Additionally, markets tend to recover and continue growing in the long term, despite short-term fluctuations. As such, your clients may want to stick to their financial plan during periods of volatility.

Yet, this can be challenging because it’s natural for your clients to be concerned when they see the value of their investments falling.

Behavioural coaching can teach clients to take a long-term view of their investments and alleviate some of the stress caused by volatility. Ultimately, this means they can make more measured decisions about their wealth.

Get in touch

If you have clients who would benefit from behavioural coaching, we are here to support them.

They can contact us by emailing or calling 01904 655 330.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Get in touch

By talking about your current situation and listening to your aims, we create a personalised plan that will put you on a path to achieving your aspirations.

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