High-Net-Worth Clients, Mass Affluent Psychological Tools?

Wednesday, October 26, 2011 07:11
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High-Net-Worth Clients, Mass Affluent Psychological Tools?

Tags: client communications

Behavioral economics is all the rage these days as a way to get the public to save more and spend less. But its problem-oriented approach makes it tricky to apply to the typical financial planning client. 

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A professor at a recent NAPFA conference had great insights into how emotion fuels financial mistakes and how advisors can steer their clients back on track.

 

Coaching tricks like these help a lot when it comes to getting better outcomes for people who might be deep in consumer debt, living paycheck to paycheck or even behind on their rent.

 

However, I had to wonder how immediately applicable all this is to a normal financial planning practice and its clients.

 

Do affluent couples need to make and "honor pledges for responsible behavior?"

 

Are families with over $1 million to invest often out of control with their credit cards, or underfunding their retirement accounts?

 

How much does an extra $150,000 by retirement really matter to the typical planning client?

 

The fact that financial planners are getting this information is better than nothing. Maybe a few of you can use these tricks to motivate the college-age children or divorced friends of your clients who need this kind of help.

 

And knowing how fear and greed can sway an otherwise sane investment plan off course is always going to be helpful.

 

But wealthy families have a different sense of risk and long-term concerns that go beyond making sure the credit card is paid every month.

 

They want to leave a legacy, educate their families, figure out what their money means. And if they're being "irresponsible," that's a decision that usually comes from them -- from a sense of guilt that they're not doing enough to help others -- and not from profligate spending.

 

Actually, maybe there is already a branch of behavioral economics that focuses on the wealthy and their concerns. 

 

It's called financial planning.

 

They want to look at their trust accounts, not their credit card statements. 

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