The Evolution of Financial Planning: A SHIFT to Human-First Financial Guidance

How successful financial advisors are building business is changing, and it's important to learn why and how it will impact you, says this advisor.

By Ross Marino
financial advisor Ross Marino
Ross Marino

The financial planning profession has been undergoing a significant transformation in recent years. A paradigm shift is occurring, with financial advisors increasingly recognizing the importance of a human-centric approach.

Many advisors began their careers filling a single need. Meaning they uncovered a pain point and offered a solution. Worried about your family if you die? You need a life insurance policy. Concerned about not having enough money when you retire? Open an IRA and start saving for the future. Financial advisors would often find out what keeps someone up at night and then provide a product or solution.

This was the beginning of situational financial planning. Find a need and fill it. Eventually, advisors understood that addressing a situation without understanding all aspects of the client’s finances had limitations. Goals-based financial planning, which balances the reality of today with the wants and needs of tomorrow, was born.

Many advisors present as “planning first” before any advice is given. This was a welcome shift when compared to the “find a product to fill a need” stage of financial advice. With the help of technology and extensive financial planning software, advisors offered detailed financial plans with a long list of recommendations. But there was a problem. Much, if not most, of the advice was not acted upon.

Why?

Using software, advisors could show clients how their recommendations would positively impact their financial future. The logic behind the advice was sound. Many recommendations appeared to be “no-brainers” and involved little effort from the client. Often, a few signatures are all it would take. Simple, right? You would think. But more often than not, prospects and clients wouldn’t follow the recommendations.

This is what Carl Richards, CFP, calls the Behavior Gap. This is the space between what clients should do and what they actually do. Advisors like me have been frustrated by the struggles of clients who appear motivated to improve their situation yet lack the ability to follow through. The best advice in the world has little value if it isn’t acted upon.

We must be missing something. What is it? Why do people often struggle to do what’s in their best interest? Advisors may want to blame the client and say, “I gave them the right advice. I explained why it was the right advice. I made it easy for them to follow my advice. If they don’t do it, that’s on them.” Yes, I’ve heard advisors say this. At best, it’s a half-truth. If people only needed to hear what they should do and why they should do it, robo-advisors would have replaced us years ago.

The keys to helping clients make good decisions are understanding what people think and how they feel. This is what’s driving the evolution of financial planning. The future is human-first.

What is Human First Financial Guidance®?

Financial advisors are in the people business. In the past, being in the “people business” meant understanding our clients through the lens of what we did for a living (very early on, through the lens of product, and later, through the lens of financial planning.) The focus was on what I, or an advisor could do for you, the client. We were the experts and did most of the talking in meetings. Here’s what you need to do. Here’s why it’s important. Here’s how you do it. That was, and in many cases still is, the cadence of a typical financial advisor meeting. Now that’s changing.

Today, financial planners are shifting their approach to human-first. Advisors enter a conversation with a blank slate.  Instead of asking about their finances, we ask what’s happening in their lives. People don’t wake up and randomly think, “I want to talk to an advisor today.” Something prompted the meeting. We must understand why they want to meet.

It’s tempting to label people and diagnose too quickly. This person is approaching retirement, so they want to know if they will be run out of money before they die. This person just had a child, so they are thinking about life insurance or saving for college. All of these things may be true, but they may not be the reasons for seeking financial advice.

The shift to human-first means the advisors ask most of the questions.  They seek to understand what someone is thinking and how they are feeling. Advisors want to understand the client’s story and what money means to them. The conversation shifts from what to do with the money to what the money is for. Financial advisors can move on to financial planning and portfolio management when they understand the person and what matters most to them.

The Importance of Emotional Intelligence

Human First Financial Guidance® requires learning about the psychology behind behaviors (why clients do what they do) and decision-making. Understanding how people think and make decisions is foundational to financial guidance. Behavioral finance has been studied for many years. Yet few advisors would describe themselves as human-first.

As financial planning becomes more holistic, the role of emotional intelligence in advisory services has become increasingly crucial. Emotional intelligence also plays a vital role in managing clients’ expectations, particularly during times of disruption and uncertainty. Advisors with high emotional intelligence have a distinct advantage over advisors who simply focus on the money.

The Role of Technology

The advent of advanced technologies has reshaped the financial planning landscape. Robo-advisors, algorithmic trading, and artificial intelligence have automated many financial-analysis and portfolio-management aspects. While these tools offer efficiency and cost-effectiveness, they lack the essential understanding of individual values, emotions, and life circumstances. Recently, numerous companies have been offering behavioral assessment and analysis tools. Advisors have begun to recognize the value of shifting the conversation. In 2023, the CFP Board added Financial Psychology to the exam. It represents 8% of the questions. This both validates and fuels the shift towards human-first financial guidance.

The Opportunity for Financial Planners

The financial planning industry is undergoing a profound transformation. Financial advisors are adapting to these changes by adopting holistic approaches, emphasizing emotional intelligence, and placing clients at the center of the planning process.

As the financial planning industry continues to evolve, the human element remains at its core. Ultimately, the success of financial advisors in this changing landscape will be determined by their ability to balance technological innovation with genuine human connection, providing guidance that goes beyond numbers to address the unique needs, goals, and emotions of each individual client.

The SHIFT 2024 event helps financial advisors learn more about how to make the shift to Human First Financial Guidance®. Sessions led by leading advisors, academics, and other experts will help advisors build a human-first practice. Join like-minded advisors at SHIFT 2024 to hear from the leading voices and organizations that focus on the human side of financial planning, connect with advisors who are passionate about human-first financial guidance, and learn simple, effective strategies to connect with clients and build trust.

SHIFT takes place March 24-25, 2024 in Orlando. Register at www.humanfirst.live.

Rethinking65 is the Official Media Partner for SHIFT 2024. Rethinking65 readers may use discount code RETHINK65 for $100 off event registration.

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.