Understanding Clients Made Easier

A veteran advisor says learning about client behavior is like unlocking a secret code that helps you provide better advice.

By Cary Carbonaro
Cary Carbonaro
Cary Carbonaro

How well do you know your clients? What makes them tick? What drives their financial decisions and what narratives shape their relationships with money? What does money mean to them? Sometimes it is hard for us to find out when they don’t know these answers themselves.

Understanding each client’s financial behaviors can be like unlocking a secret code. Sometimes their financial decisions today are shaped by what they observed in their childhoods, such as mom and dad fighting over money or when dad got paid it was a fun day because they would have a family outing. Other times, their decisions may be tied to their current mood. For example, some people may use “retail therapy” to feel uplifted — they might buy a new designer pocketbook to feel better even though they already have many of them and don’t need another.

The financial services industry is increasingly recognizing that such behaviors are important to understand when tailoring advice. In 2021, for example, the CFP Board added the “Psychology of Financial Planning” to its principal knowledge areas. (Read more about the topic here.) Many more advisors realize today that a client’s attitudes, values, and beliefs play a crucial role in saving, spending and investing decisions.

Financial therapy takes off

As a result, the concept of financial therapy has taken off in the 21st century. It focuses on the evaluation and treatment of cognitive, emotional, behavioral and economic aspects of financial health (Brit, Klontz, & Archuleta, 2015).

Financial behavior tends to be more emotional than rational for most people. Consequently, many advisors and other professionals focused on personal financial planning also counsel clients on managing their emotions and avoiding interpersonal conflicts when presented with financial choices.

Four money beliefs

Financial therapists have identified four categories of money beliefs, often formed during childhood: money worship, money status, money vigilance and money avoidance (Lawson, Klontz, & Brit, 2015).

Money worship is the belief that money and purchasing power determine happiness. The money status group encompasses people who equate self-worth with net worth. They sacrifice self-actualization and happiness to consumerism. Their more conservative money vigilance counterparts are at the opposite extreme. They vigilantly control their spending, live frugally, and avoid even those expenses that could make life more pleasant. Money avoidance is associated with heightened emotional distress followed by conflict and a rejection of the very idea of money altogether. (Novak, Johnson, 2017).

Female clients

As a woman and wealth expert, I’ve observed how it is especially important for women to understand why they do what they do. Delving into behavioral finance makes the financial planning process more female-friendly.

For example, one of my female clients believes she is provided money because she deserves it. She spends often and buys the best. Through our discussions, I learned her grandmother told her she was very special and would want for nothing.

When her grandmother passed away, my client was used to spending and always looking her best. She didn’t care about the debt piling up because she thought someone else would take care of it. She was passed over for her dream job because they ran a credit check and found she had high debt to income.

A behavioral finance tool showed that she is spontaneous and that money encourages her to enjoy and live in the moment. A reasonable budget would not necessarily stop her behaviors. With this understanding, my client let me counsel her and agreed to work with a financial therapist. A good practice for my client was putting savings and investing on automatic.

A few choices

Today, many behavioral finance tools can help advisors help clients address such issues. These tools provide invaluable insights into the subconscious motivations behind financial choices. Behavioral finance tools not only helped me learn more about my clients, but they’ve also helped me learn more about myself.

When I was an advisor at United Capital, we used its MoneyMind quiz with our clients. This simple seven-question test helped our clients (and us) understand what was driving their financial decisions: fear, happiness, commitment or a combination. It was a simple way to explore why someone does what they do around money. I found MoneyMind really helpful in learning about clients.

Money Habitudes

Another similar tool is Money Habitudes, initially released in 2003 and one of the first behavioral finance tools. It offers a game-like assessment — played either via physical cards or online — to help people understand and talk about their finances in a fun, constructive way. Money Habitudes also allows people to pinpoint underlying financial habits, attitudes and motivations to make real behavior changes. It helps financial professionals bring emotions and personal stories into the conversation without getting touchy-feely.

Money Habitudes also helped me learn a lot of things about myself. I am an 8 out of 9 on planning, which means I Act Intentionally. I am 5/9 on Safety and Security. Not surprisingly, I scored zero on being Carefree about money.

Knomee

Another potentially useful tool is Knomee. I haven’t used it with clients yet but I have tried it myself. It helps users confidently create unique financial profiles and securely connect with financial service providers.

DataPoints

I also suggest checking out DataPoints. It gives financial advisors multiple tools to uncover their clients’ money-related attitudes, beliefs, and values. The company was founded by Sarah Stanley Fallaw, daughter of Thomas J. Stanley, author of “The Millionaire Next Door.” She co-authored “The Next Millionaire Next Door” with her father. Many of her tools are based on their work.

A special event

For advisors interested in learning more about behavioral finance and human-first financial advice, a good place to do so will be at the Shift conference, coming up March 24-25 in Orlando. I will be speaking there and it would be great to meet!

(Rethinking65 is the media partner for Shift. Readers can use the code RETHINK65 to register to attend for $199, a 33% discount.)

Cary Carbonaro, CFP, MBA, is SVP, director of Women & Wealth at ACM Wealth, the wealth planning team of Advisors Capital Management. She was appointed and has served as a CFP Board ambassador since 2014. Cary is the author of “The Money Queen’s Guide: For Women Who Want Build Wealth and Banish Fear.” She has spoken all over the world about financial literacy for women. You can reach her at cary.carbonaro@advisorscenter.com.

Latest news

More Retirees are ‘Unretiring,’ Survey Reveals

Advisors say near-retirees and retirees are much less prepared for retirement than they think they are, according to Allspring.

Advisors Dabbling in DC Market Seek Greater Support: Cerulli

Providing them with tools, education and guidance would help them grow their retirement-plan businesses, says Cerulli Associates.

Executives Traveling on Corporate Jets Face IRS Scrutiny

Do you have executive clients who might be using a corporate jet for personal use? Tell them the IRS has announced a crackdown.

U.S. Solo Renters Age 50+ Way Up

The number living alone rose by more than half a million, but there’s been a growing trend of older people living with roommates.

SEC Settles Charges Against Former Advisor

The former advisor, Andrew Komarow, was known in the industry for working with special needs families and neurodivergent clients.

SEC Fines TIAA Unit $2.2M for Violating Reg BI

The SEC said a TIAA broker-dealer charged some retail customers too much to invest in mutual-fund choices in an IRA.