As financial planners, we may often see how our work aligns with psychology.  Although most of us aren’t qualified to be a full-fledged financial therapist, there are ways for us to incorporate psychology into our practices.

This week, your host Hannah Moore sits down with Dr. Martin Seay, Ph.D., CFP®, to talk about positive psychology in financial planning. As financial planners, we impact the lives of our clients in profound ways.. We can use positive psychology to lower our client’s stress, help them to grow an optimistic outlook both in their finances and their life and thrive in their financial and personal life.

Think about: what value are you trying to add to your client? If it’s to make them happier, to make them more successful in their retirement, think about what’s going on in their head and ways that you can support that.

 

What You’ll Learn in This Episode:

  • How to implement positive psychology in your practice.
  • How to reframe negative money mindsets.
  • How to communicate positively with clients.
  • How to relieve the tension your clients feel about money.
  • How to create positive money scripts.
  • How to energize the conversation around financial planning.

 

The Institute of Personal Financial Planning at Kansas State University

Sarah D. Asebedo, Ph.D., CFP®

The Kinder Institute of Life Planning

Sudden Money

Money Quotient

Evidence-Based Financial Planning: To Learn . . . Like a CFP

Sonya Britt-Lutter

How Clients’ Money Scripts Predict Their Financial Behaviors

John Grable, Ph.D., CFP®

 

 

Show Transcript

Ep75 Transcript


Hannah:               Well, thanks for being with us today, Martin.

Martin:                 Thank you for having me.

Hannah:               Can you tell us what is positive psychology?

Martin:                 So, I’m gonna read you a definition and I want to read it directly. I apologize for that, but I think it’s pretty powerful. So, positive psychology is the scientific study of the strengths that enable individuals and communities to thrive. The field is founded on the belief that people want to lead meaningful and fulfilling lives, to cultivate what is best within themselves, and to enhance their experiences of love, work, and play. To me that’s a pretty powerful statement. It’s about allowing people to thrive by building on strengths and enhancing experiences of love, work, and play. That sounds a lot like financial planning to me.

Hannah:               You mentioned the assumption that that was based on, that people want to thrive in life. What are the other assumptions that people base different psychological theories on?

Martin:                 Yeah. So, positive psychology is sort of an evolution in psychology. Traditional psychological theories and psychology itself is more focused on … there’s some sort of deficit or disorder or maybe something wrong, and we’re trying to address that and pull somebody back to functioning. What makes positive psychology unique is it says, “Well, there’s more to life beyond that functioning, and let’s take those people that are well-adjusted, that are happy and that are performing well, but maybe they could be better off. Maybe there’s a way to raise them to a higher level of well-being to allow them to flourish.

Hannah:               Obviously we can see the tie over to financial planning, but how have you seen this applicable to financial planners? Or maybe a better question is have you seen financial planners starting to incorporate this into their practice?

Martin:                 I think the whole framework that’s used for the clients has really evolved over time. I think we talk a lot more with clients without even knowing it, without even thinking about positive psychology. We talk a lot more with clients about goal achievement and finding out what really makes them happy and understanding we’re not financial planners to help them have more money. I mean, that’s obviously great, but money, for most people, is a means not an end, and us financial planners are having conversations surrounding goals, surrounding … Life planning has many aspects that tie into what positive psychology would say, but the whole conversation has shifted away from satisfying … maybe it’s an insurance need, maybe it’s, “What’s that dollar amount I need to have for retirement,” to, “What does retirement look like? How do I thrive in that? How do I support my clients through that conversation?” So, the whole framing surrounding financial planning has really changed in a way that speaks directly to positive psychology.

Hannah:               So, one of the things we talk about a lot on the podcast is, “What is financial planning versus what it is not?” So, if we’re doing positive psychology, I mean, does that really … if you’re having these conversations with your clients, does that really land you in that financial planning camp?

Martin:                 I’d certainly think so. I mean, there are a lot of elements around what makes a good financial planner and there are a lot of different ways to practice it, but at the end of the day financial planning is really about holistically understanding a client and moving them to meet their goals. If you’re doing positive financial planning, that is financial planning through the lens of positive psychology, I think you have to be doing that comprehensive financial planning. I also think it’s really sort of the next level, the evolution and the future where we can … a lot of people are already doing this, the strength is the scientific grounding, which I could talk a little bit about more later, but we’re already doing this in that we are taking people to that next level. We’re going past the financial advice, going past the product selection to fill a need to really providing opportunities for fulfillment.

Hannah:               One of the terms that you coined in your paper was “positive financial planning”, and I thought that was a really great way of kind of bringing them together. How much time does this take for an advisor? When I hear these things … and I spend quite a bit of time with my clients, but I know other people don’t. Is this something that can be incorporated efficiently or is it something that just requires time to do, to do it well?

Martin:                 Yeah. That’s a really good question and it’s a really good point. There’s always a cost to a planner for using something extra. It’s got to be worth the time, it’s got to be worth the effort, and I think so. I think a lot of what positive psych offers is not necessarily additional work, it’s just the lens through which you communicate with your clients. You establish the relationship and you communicate about the value that you are providing to them. So, many of the circumstances would just be slightly altering the conversation in ways that connect, but one of the easy ways that you could do this is … There are a number of questionnaires out there, and so there’s a questionnaire that here we talk about in the paper is well-being theory. It talks about positive emotion, engagement, relationship, meaning and accomplishment.

                                There’s a 23 question survey that you can use, you can provide to an individual, and you can get a really easy… once again this is free … you can get a really good understanding of where they’re at mentally, where they’re experiencing happiness and where maybe they’re shortcoming, where they need a little bit of help. But what’s more powerful is, when you do your annual checkup, how about you ask those questions again, and then you not only see where they are today, but you see how they’ve changed since last year. It’s very easy to have that conversation as you start your meeting. “Hey. So, it looks like you’re down a little bit in feeling the meaning of life. Is there something going on? Is there something I can help you with?” Very easy conversation starter that really allow you to connect with the mental state that your clients are in.

Hannah:               Okay. So, I love the psychology of financial planning, but where’s the line between our role as financial planner versus financial therapist?

Martin:                 Sure. You have to be very careful. You need a license to practice therapy and there’s intensive training that’s required to do that, so you can’t operate as a therapist, although I know financial planners often feel like they do. I would view this more as a lens to guide your conversations and understand what’s going on in a client’s head as opposed to providing a lens through which for you to provide therapy and change themselves. But it is important and it is important that you don’t overstep your bounds and get into places where you could be practicing therapy.

Hannah:               So, as I said … well, I like to think I do some of this work with clients, but have there been any studies or anything besides anecdotal examples of where this has helped … Is there any quantifying how this actually helps clients in practice, or is that kind of the next steps?

Martin:                 So, there is evidence in other domains, and so I’ll share a little bit of that. Right now, we’re working hard on following up to the next steps, and I have to make sure that I mention Sarah Asebedo. She was a graduate student at Kansas State. She’s now a professor at Texas Tech, and she’s one of the ones that spear-headed this and wouldn’t be here without her, so I wanted to make sure to give her a shout out. But let’s talk about why research that does exist, and it’s not necessarily in a client setting, but why is it important to facilitate this well-being? Well, positive emotions … those that feels positive emotions are … and it’s important to think about what comes first.

                                Those that have positive emotions are then more likely to earn more money and then more likely to succeed at work. Those that have positive emotions are more likely to exhibit will power and self-control over unhealthy urges. They’re more likely to save money. They’re more likely to have a preference for the future. They’re more likely to stay out of debt. And they’re more likely to take time before making significant decision, so there’s real impact there and carry over to the financial planning lens. So, until we get to applying positive financial planning in let’s more of a clinical setting to really see the benefits, I think there’s really strong evidence there that this would help financial planners.

Hannah:               One of the things as I was reading through your paper that kind of stuck out to me is there’s a lot of programs out there right now, so like the Kinder, his three questions. You have Sudden Money, you have Money Quotient. How do those factor into this idea of positive psychology?

Martin:                 So, I filter back to Dave Yeske and I filter back to evidence-based financial planning. If we’re gonna move forward, our financial planning practices need to be based in scientific research and scientifically validated, let’s say theories or perspectives. So, I think they’re fantastic. I think they’re amazing. It brought amazing value to clients and they do really good things. I think one of the things that we’re trying to do, though, is develop positive financial planning from established academic work, take what we know in academia and apply it to planners, and certainly there’s a lot to be learned from what planners do. But let’s say that we can provide you scientific evidence that if you communicate with clients in this way, you’re going to have “X” better outcomes. They’re going to … whether it’s save more, whether it’s goal achievement, whether it’s they’re gonna be more satisfied in life you’d pick the financial planning outcome, but I think that’s where we’re trying to go.

                                It’s not that any of those models are wrong. I think they provide tremendous value, but let’s go ahead and ground those in academic theories and filter it from there. I want to be clear, at the end of the day there won’t just be one model. There’s gonna be some models that work better for some planners, their communication styles, the way they work with individuals, and there’s gonna be some communication methods that work better with different types of clients. The engineer that wants to focus on the numbers probably … it’s not gonna really click with him if you try to talk to him about the soft side, “Maybe it will, maybe it won’t.” But ideally what we’ll do, let’s say, at Kansas State or another academic program is we’d be able to train students in several different communication styles or methodologies to work with clients, and we’d be able to communicate to them, “Hey. This is the type of client this works for and this is what it does. Or these are the type of scenarios where you might want to operate through this lens based on, as Dave Yeske would say, evidence.”

Hannah:               That’s a whole … It feels like a whole different world than maybe everything we study for the CFP Exam.

Martin:                 Sure. Well, you know, the CFP Exam is focused on a lot of content — you got to know that content to be a financial planner — but applying that content in real life scenarios is a very different thing. We talk about how it takes you three to five years of experience before you get comfortable working with clients. Well, the day you become a marriage and family therapist … you learned that in school. You’ve learned how to work with clients in psychology. You learned how to work with clients in a number of different professions, and they have these theories and perspectives to get there. I’m not saying at the end of the day financial planning is gonna look like that, but we can try to emulate some of the things that work well for them, I think.

Hannah:               When I was reading through, again, your paper, you talk about importance of purpose and how we as financial planners can help our clients find purpose in their lives. That feels like a tall order, I mean, especially younger planners working with older clients. So, how do you see financial planners helping clients find their purpose?

Martin:                 So, that’s a really good question. There is a balance between … and I think what you’re getting at it is helping individuals find purpose that maybe don’t have it or helping people align their resources and their time with a purpose that they feel. I think many time with clients, if you ask them they can tell you what it is that they really want to do, but they don’t know if they can do it. They don’t know if they have the resources. They don’t know what’s going on there, and so I’m not saying that financial planners can have in depth conversations to figure out the hidden purpose in life that people don’t know that they have, but they can work with clients to help them realize, “Hey, this is my purpose and I know this. This is what makes me feel like I’m worthwhile.” “Well, what can we do to shape your life in ways that would allow you to follow that purpose?”

Hannah:               Yeah, that’s really interesting. As you’re saying this, I’m envisioning this is not one conversation, this is years of conversations. What are your thoughts?

Martin:                 So, one of the techniques that is used in some therapy conversations is scaling, and that’s really understanding where people are now and then how they respond differently to different questions over time. I think it’s really important … The real power from this is not “set it and forget it”, that is let’s understand where they are when they begin as clients and then we’ll have a conversation and be done. I think where the power would come is if you understand and you measure what’s going on in their mind … and I know you do this through conversations with your clients already, you check in with them, you ask what’s going on, what’s going well, if there’s anything that is bothering them, but what about if you ask this …

                                From a scientifically based method, you’re able to say, “Hey. Look, it looks like something’s going on here. Is that real?” Knowing that they’ve answered the questions before and now it’s dipped. That’s telling you something if you can follow that over time, so I think this is … once again, it’s a lens through which to have your conversations with clients and it would be something that, to really have effectiveness, you would have to use with clients over time.

Hannah:               One thing that I have found with clients and even myself personally is you don’t have these conversations a lot in life, so to be able to have a place where it’s just these are the types of conversations I think is really powerful in itself.

Martin:                 But what’s your value proposition? If your value proposition is to help people align their investment portfolio, well the market’s gonna get pretty competitive really quick. Your value proposition is to listen to people, understand what they really care about, and help them to meet their goals and I think … to flow back to when you were asking about what’s comprehensive financial planning or what is financial planning, I think part of that lens is there and this is just another tool to facilitate you on. So, some things take time, but maybe it’s worthwhile.

Hannah:               Another concept from your paper was … You talked about developing optimism, and what surprised me was that you suggest that closing the gap between advice and action could actually be rooted in optimism. Can you speak more to that?

Martin:                 Yeah. So, it’s really interesting. The disposition of a client when advice is given really matters. So, let me talk about some research that Sonya Britt did and then I’ll get to optimism. So, Sonya Britt, who’s a faculty member at Kansas State, she did some research and she uses … its biomarker, so she understands people’s temperature and their temperature is actually pretty reflective of their stress level. What her research has shown is that if an individual is more stressed when advice is given, they’re less likely to follow with that advice three to four months later. If they are less stressed when advice is given, they are more likely to have followed that advice, so it’s clear evidence that the state in which the client is from a stress standpoint, which by the way there’s a lot of information out there about how you can effect a client’s stress level in a meeting, is going to lead to different actions, better outcomes for that client. Related to optimism, it’s really about the explanatory style.

                                We provide an example in the paper that’s talking about market performance and let’s say it’s been down. An explanatory style for why an individual would say the market is down can really lead to different interactions. So, an optimist let’s say in cases of a down thing would say, “Hey. The market was down last year, but it can probably go up in the future. It was an off year.” A pessimist would say, “The markets are down. They’re never gonna go up again.” Well, you can understand as a planner how what they would ask you to do would be very different depending on the explanatory style. Is it a transient thing, “I think everything will go up again in the future,” or is it pessimistic? Now, certainly that doesn’t mean you need to ignore your evaluations of markets and things like that, but in terms of the mental state the client is in, that will lead to different advice.

                                It also leads to another issue besides the permanence, which is, “Is this temporary or does it last forever,” is pervasiveness, and that would have to do with, “Is this something that’s gonna be universal or specific?” Is it that, “Hey, stocks were just risky last year,” or is that, “Investments are risky overall,”? And lastly would be personalization. If an optimist would say, “Yeah, markets went down ’cause that happens some time,” a pessimist would say, “I made poor investment decisions. I screwed up,” and it’d be the reverse in a case of bad events, but understanding that optimism … and it’s very clear, there’s very clear evidence that you can develop optimism with working with an individual can lead to those different outcomes.

Hannah:               So, I feel like I need a Master’s degree right now to work with clients. So, a really easy takeaway, so like if we wanted to start applying this tomorrow … So, basically what I’m hearing you say is that we can reframe … like when we hear a client say something to us that is in that state where the markets are just always down, and that we can reframe that for our clients and that’s gonna help, is that kind of what I’m hearing? 

Martin:                 So, we share this, and planners say they do it without knowing it. So, if you’re trying to change the disposition, it’s called … sorry to go back to maybe a Master’s degree, but it’s the “ABCDE” pattern of behavior and that is something happens, maybe it’s the stock market goes down — that’s the adverse event. The belief: “Hey, the market’s bad. I’m never gonna be able to do anything.” The consequence: “I don’t want to be in the market anymore.” Where you come in as the planner is the disputation and energize stage, that is, “Hey. I know the market went down last year, but it’s not true that the market is always bad. Let’s talk about what’s happened in the past.”

                                Then through that conversation you can get the client to realize, “Yeah. You know, maybe it was just last year. It’s not all the time. Overall, through my working career, the investments have gone up,” and then you can energize, that’s the “E” on the end of that, and say, “I know markets were down last year, but let’s think about your goals and let’s look at what’d happened in the past. I think that if we stick with this, we can really get that.” So, where the financial planner comes in is the disputation and energize where you can say, “I understand you have that belief, but let’s really think about where that comes from. Is it right or wrong? If not, then let’s figure out where we can go from there.” Is that any simpler?

Hannah:               It is. Thank you. Well, even as you were saying this, I mean, I can even see … I mean, I have several clients right now that are just kind of difficult and I’m like maybe I need to write this out, this activating belief, what do they … the activating event, what is their belief, what is the consequence. I mean, I feel like it’s almost worksheet format.

Martin:                 I think … It may not make sense when I keep on saying “lens”, but what if a client comes up with this and instead of just saying, “I don’t know what the heck they’re thinking,” you think, “Okay. So, maybe they’re being a pessimist here, or maybe they’re just putting too much attention on what happened last year, so let’s think about this disputation and energize,” and it may be that you write it down when you get to real things and do that early on, but long term it’s just a lens for thinking about it. When a client presents something, try to understand where that’s coming from, reframe, dispute and move in before.

Hannah:               So, you’ve been seeing financial planners implementing this in their practices. What has been the feedback that you’ve gotten from planners about your paper and what you proposed and outlined?

Martin:                 So, I think the feedback has been really positive. I think what the concern is is really getting down to the actionable stuff. So, you have a lot of clients, you’re trying to run a business, especially let’s say the next gen folks who might be listening to this, you’ve got a lot of things to focus on as you try to move forward. I think the feedback would be, “Do the best you can as you move forward and try to improve every day. Better is better and don’t worry about it if it’s not the best if you’re constantly getting better.” But I think I come down to … People seem to really like this. I think there’s still … I’m trying to figure out exactly how best to implement it, how best to do this.

                                I mean, the simple ways where you can really move people or with something like a gratitude visit — that is an individual that let’s say is in retirement and is in let’s say the retirement doldrums as they’ve gone through. Challenge them to go out and find somebody that’s really contributed to their life and have them write a letter to that person explaining why they’ve been important and what they’ve done that’s helped them, then they’ll exercise and after that you require them to go … you ask them to go and present and read that letter to the person. It’s kind of psychologically moved them to a place from retirement doldrums to, “Well, there’s some really cool things and I have some good relationships here that I can value on.” So, as we come up with more exercises like that that are directly implementable I think that’s gonna help.

Hannah:               One thing I just want to add ’cause I do a lot of … every client meeting I try to do some exercise like this, if you would, before every client meeting. I know a lot of people are really concerned that it doesn’t fit or clients would be resistant to it, and what I’ve found is if the advisor’s very comfortable with it then the client becomes very comfortable with it.

Martin:                 It’s gonna take time, right? You’ve got to figure out what works for you, and I think, like I also said, at the end of the day I hope there are ten other methods that you can use when working with clients that if your personality, if you’re Hannah Moore and you connect with people and you feel comfortable with the soft stuff, you can use something like positive psychology. If you’re somebody else and emotions don’t speak to you, there’s other ways that you can do this. There’s not gonna be one right way to communicate with a client and that’s gonna go back to the advisor’s strength and that’s gonna go back to the client perspective.

Hannah:               One of the ideas is in order to take a client through life planning you need to have done life planning yourself. So, for somebody who’s kind of looking at this and just kind of curious about what it would look like engaging their clients this way, maybe a good step is to start doing it themselves? I mean, what are your thoughts on that?

Martin:                 Yeah. So, that’s a really good point. So, the exercises specifically, or things like that, you should try it first — understand the mental process that you go through. One of the things that I do when I talk about this is I share my scores from the test that I ask people to provide, clients, related to the positivity that I feel in my life, related to engagement, related to purpose, and show … look, it’s important to reflect on how this would affect you. If you go to somebody else and you haven’t gone through it yourself, it is gonna be hard to make that connection, so I think that’s great advice and that’s why psychologists have to go through psychological evaluation or they have to meet with psychologists themselves before they’re allowed to practice. You’ve got to practice what you preach.

Hannah:               So, in your paper, which is great and everybody listening needs to read this paper, you do several case studies. Could you walk us through the case study with Tom and Adrian?

Martin:                 Sure. So, Tom and Adriana, in this case study … What we try to do with these is just provide examples that financial planners might relate back to their practice. It’s always hard with case studies, but for Tom and Adriana what we tried to do was … A new client, and we were going through the onboarding process, so we don’t know a lot about them. So, as far as the onboarding process along with collecting all their financial information, we wanted to understand a little bit about them. So, in our conversations what we found out is they were a busy couple, they were dual-learning, married with children, and as we know that can cause stress, and they found that they were fighting a lot about money, but what’s surprising is they didn’t really have money problems, but they were receiving gifts from Adriana’s parents on a regular basis. And so, as the financial planner interacted with Tom and Adriana, they did a couple of different things — they went through a developing optimism exercise.

                                What they felt in the couple’s arguments was that Tom specifically was too negative that he said, “Well, we’re always fighting about this,” and it wasn’t the reality. They did have arguments about it, but if they went back to the permanence and the frequency thing they would have saw, well, there was some tensions there, but it wasn’t as big as you thought. We went to the gratitude visit where they were feeling stressed because they were receiving this money and making sure they were using it the right way, but maybe they didn’t actually want the money, they needed to have that independence. So, the gratitude visit was to go and visit with the parents and thank them for the money and try to process through and filter through whether they wanted that money or not. So, just a couple of different ways, a couple of different client scenarios where it might be possible to go through some of these exercises and tease out the major stressors that they’re going through and allow the client to see where the stress is coming from and alleviate that a little bit. Hopefully, that’s right about the case study.

Hannah:               I think it’s such a realistic example. I mean, I think most advisors have had clients come in and they sense that tension and that argument about money. Sometimes they come just to have that third party perspective, so I think that’s great how you’re applying it to actual people.

Martin:                 Well, and I think about Brad Klontz right, so money scripts. positive psychology, none of this should operate in isolation, so the money scripts things that Klontz does, in terms of your relationship with money and how you view it, with couples is a really big deal and you get to huge tensions when they view money differently. So, it’s not just positive psychology, there’s a lot of really good stuff out there.

Hannah:               If somebody wanted to just have one takeaway that they could start implementing tomorrow, what would you suggest? Is there one thing that they can to just start practicing or working on to help them be better in the positive financial planning space?

Martin:                 At the end of the day, I think all that I would suggest people do is really think about what value are they trying to add for their client, and if it’s extra alpha, if it’s something like that, that’s absolutely fine. But if it’s to make them happier, if it’s to make them more successful in retirement, then think about a little bit about what’s going on in their head and ways you can support that and looking at different practices, different scientific methods that are out there to really help you along. Why should you have to struggle to figure it out yourself?

Hannah:               So, what’s next for you, or what’s next for the financial planning research related to positive psychology?

Martin:                 I think the future of research is … This is John Grable, who’s at the University of Georgia … He actually challenged researchers last February to come up with manuals for financial planning, that is distinct approaches that you could train other people to use, and then to test those manuals. That is instead of saying, “Well, it takes 30 years of client experience to figure it out,” let’s distill that wisdom into a manualized approach so that a young planner can cheat, that they can take that experience and go from there and they’ll start at a lower threshold. So, I think the future is developing these different approaches that we try to actually write down and then quantify and evaluate how they work, so that might be a pretty large task, pretty broad, but if we’re talking about financial planning my goal is to lower my students’ learning curve, that is they can graduate year one and be pretty well equipped to handle client meetings, be pretty well equipped to understand some of the dynamics that might be going on in a client’s life and, of course, have the technical knowledge to apply and help them out.

Hannah:               And so finally, as we wrap up, do you have any advice to the new planners who are listening to this podcast right now?

Martin:                 It is really hard to find the firm with the right fit, with the right perspective, to build clients, to learn the practice, to do everything, so just try to get better every day. Try to establish relationships. If you can establish relationships at work and with your clients, everything’s gonna work out in the long run. Don’t get so stressed that you lose sight of that.

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