Our Journey in Building the Profession’s Financial Psychology Ecosystem

It is that time of year to look back a bit and of course, look ahead. No, I am not discussing New Year’s resolutions this week. That’ll come in a few weeks. Perhaps that is a New Year's resolution itself! In the meantime, a look back and a look forward.

Some may say this week's newsletter sounds like one of the those holiday letters that people send to friends and family. Probably true, but nowhere here do I talk about where I traveled or how I saw Wicked.

The past two years have been quite a journey as Financial Psychology continues to take-on added importance in our profession. In this short time, we have partnered with firms, associations, independent advisors, and colleges and universities across 15 countries to enhance the effectiveness of our client-centered profession.

Our vision has been to create a comprehensive Financial Psychology ecosystem, integrating advisor education, a college and university program, and a tool like MRI? to help our profession be more effective with clients, helping build stronger relationships, foster trust, and achieve better outcomes for their clients and practice.

Advisor Education

The Psychology of Financial Planning Specialist? program helps advisors with specific ways to connect with their clients more effectively, understanding the behavioral and emotional drivers behind clients' financial decisions. This deeper understanding enables advisors to build trust, improve communication, and get the client to take action, regardless of business model. Our on-demand modules:

Module 1: Intro to the Psychology of Financial Planning

Module 2: Client Values & Goals: The Planner’s Role in Facilitating Financial Success

Module 3: Understanding Your Client’s Background

Module 4: Understanding Your Client’s Money Beliefs

Module 5: Understanding your Client’s Financial Behaviors

Module 6: Multicultural Competence in Financial Planning

Module 7: Dealing with Client Money Conflicts

Module 8: Six Steps to Help a Client Navigate a Crisis Event

Module 9: Behavioral Finance for Financial Planners

Module 10: Client Learning Styles and Risk Tolerance

Module 11: Principles of Effective Communication

Module 12: Counseling in Financial Planning Practice

Module 13: Getting the Client to Take Action

Module 14: Implementing Financial Psychology into Practice?

For firms, applying these principles leads to stronger client relationships, increased retention, and enhanced client satisfaction, which ultimately drive higher revenue. By aligning financial strategies with clients' financial psychology, firms can create tailored solutions that resonate more effectively, fostering loyalty and long-term growth.

Psychology of Financial Planning College/University Program

In just a year and a half, we are proud that 104 colleges and universities are now using our program to prepare students to better understand and act upon the financial psychology of their future clients. Hundreds of students enroll monthly, and we plan to continue to work to connect new Psychology of Financial Planning Specialists? with firms everywhere.

And now…The Money & Risk Inventory

Is financial planning an art or science? Well…

As we all know, clients often have complex emotional and psychological relationships with money, influenced by past experiences, personality traits, and social factors.

The Problem: Advisors Don’t Truly Know Their Clients’ Financial Psychology

Despite the benefits, many advisors lack tools to assess clients’ financial psychology. Most advisory practices rely on brief onboarding discussions or simplistic questionnaires that fail to uncover underlying beliefs, biases, and fears. This lack of psychological insight can lead to misunderstandings, with advisors unintentionally offering advice that conflicts with clients’ financial comfort levels or preferences. For instance, a client with deep-seated anxiety around money might interpret a well-meaning suggestion to “invest aggressively” as pressure rather than encouragement (Nobre & Grable, 2015).

Moreover….

·????? How often does a client want you to communicate with him? And how?

·????? What about their FOMO when it comes to investing?

·????? Do they feel they are in control of their financial journey?

·????? How did they handle the last financial crisis?

·????? Does your client prefer visuals, spoken word only, or do they like to talk through everything so they understand it better?

·????? Does your client really desire ESG investing…or really NOT want it?

·????? What are your clients’ Money Scripts?

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The Limits of Traditional Risk Tolerance Assessments

Traditional risk tolerance assessments fall short in several ways:

• Inflexibility: Most assessments categorize clients rigidly as conservative, moderate, or aggressive without recognizing the fluid nature of risk tolerance, which can change with life events, market shifts, and personal growth (Finke & Huston, 2013).
• Lack of Context: Risk tolerance scores often fail to account for clients’ unique backgrounds, experiences, and emotional responses to financial events. This omission can lead advisors to misinterpret client intentions, missing essential cues about comfort with risk and potential for long-term financial commitment (Nobre & Grable, 2015).
• One-Size-Fits-All Approach: Many assessments don’t consider that risk tolerance varies across financial domains. For example, clients may feel comfortable taking risks in retirement accounts but are highly conservative in their daily spending (Sullivan et al., 2012).

These shortcomings highlight the need for a more comprehensive tool—one that captures both risk tolerance and the broader financial psychology landscape.

The Money & Risk Inventory (MRI?) was developed by Dr. John Grable, Dr. Brad Klontz, and myself to address these limitations by providing a holistic view of a client’s financial psychology. It based upon our Psychology of Financial Planning books and John Grable's work in risk tolerance.

MRI? is designed to be a game-changer for advisors who want to deepen their understanding of client behavior beyond traditional metrics:

Comprehensive Financial Psychology Assessment: MRI? assesses multiple dimensions of financial behavior, such as emotional comfort with risk, financial decision-making style, and attitudes toward debt and saving. This multi-dimensional approach provides a fuller picture of clients’ financial mindsets (Grable et al., 2023).

Advisor Insights: MRI? allows advisors to tailor their strategies to individual clients, making it possible to align advice with clients’ psychological comfort zones. This helps avoid one-size-fits-all solutions that miss critical nuances.

MRI? flags what may be a priority item for the advisor to focus based upon the client's unique financial psychology.

Dynamic and Adaptive: Unlike traditional tools, MRI? recognizes that financial psychology isn’t static. The inventory allows for regular check-ins, enabling advisors to track how client attitudes shift over time and adjust their approach accordingly.?

MRI? empowers advisors to offer guidance that resonates with clients’ financial preferences, reducing the likelihood of mismatched advice and fostering stronger advisor-client relationships (Klontz & Britt, 2022).?

Making MRI? Part of Your Practice

Adopting MRI? is straightforward. Advisors can integrate it as part of the onboarding process or use it to enhance their understanding of long-term clients. The insights derived from MRI? facilitate more productive conversations, helping advisors address client concerns proactively rather than reactively.

Ultimately, MRI? strengthens the advisor-client bond by demonstrating a commitment to understanding not only clients’ financial goals but also the psychological factors that influence their financial decisions.

Looking Ahead

The intersection of psychology and financial planning is no longer a future niche concept—it’s the present value proposition for the profession. We are empowering advisors to build stronger client relationships, deliver more personalized strategies, and achieve better outcomes.

We’re excited about what’s to come in 2025 and beyond. Whether you’re an advisor looking to enhance your practice, a firm aiming to innovate, or an educator shaping the next generation, we invite you to join us on this journey.

?Happy New Year!

Want to try our programs and take MRI? for yourself to learn how it can help your firm, email me at [email protected]

References?

Finke, M., & Huston, S. (2013). Measuring risk tolerance: Insights from behavioral finance. Journal of Financial Planning, 26(5), 35-43.

Grable, J. E., & Britt, S. (2018). The psychology of financial planning. Journal of Financial Counseling and Planning, 29(2), 196-208.

Grable, J. E., Klontz, B., & Chaffin, C. (2023). The Money & Risk Inventory: A guide to understanding financial psychology. Financial Psychology Institute.

Klontz, B., & Britt, S. (2022). Integrating financial psychology into financial planning. Financial Planning Review, 6(1), 1-12.

Klontz, B., Britt, S., Mentzer, J., & Klontz, T. (2021). Money beliefs and financial behaviors: Development of the Klontz Money Script Inventory. Journal of Financial Therapy, 2(1), 1-22.

Nobre, L., & Grable, J. (2015). The role of risk profiles and financial behavior in predicting investor decision-making behavior. Journal of Financial Services Marketing, 20(2), 51-62.

Sullivan, M., Kozup, J., & McDonald, R. (2012). Risk tolerance and financial decision-making: Context and domain effects. Journal of Behavioral Finance, 13(1), 44-52.

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