Why financial planning needs to get psyched-up about education

As well as having to master a great deal of technically demanding material – which, depending on your area of specialisation or ambition, ranges across insurance, investments, SMSFs, estate planning and beyond – advisers have to meet strict, ongoing professional training standards and keep on top of the ever-changing regulatory mire.

The old days – if they ever existed - when anyone could hang up a shingle outside their caravan and call themselves a 'financial planner' are well and truly gone.

Furthermore, clients today are better informed on what to expect from a financial adviser and are unlikely to tolerate incompetence – even from a novice planner.

While entry-level financial planning certifications might not yet have the gravitas of professional degrees such as law and accounting (professions, remember, that are centuries old), the educational progress in this industry has been astounding.

Ever since the introduction of the Financial Services Reform legislation in 2001, baseline advisory education standards have been ratcheting up.

While the Financial Planning Association (FPA) has already decreed that all financial advisers (in its membership, at least) need to be degree-qualified, the argument today has moved on to whether that benchmark should be shifted even higher, to the post-grad level.

But I'm not going to enter that debate. I believe everyone in the industry acknowledges that we need a quality academic training program for planners.

Every adviser today needs to demonstrate a grasp of the underpinnings of financial planning – and prove they're keeping on top of developments with ongoing training.

Technical competence is a given.

However, as every financial adviser eventually discovers, technical competence by itself doesn't guarantee success in this industry. Financial advice is, at heart, a people business. And people generally are trickier to manage than spreadsheets.

In fact, I would argue that developing an understanding of people, and all their psychological quirks, is the most essential skill of a good financial planner they must master. Advisers either develop this skill or move off the client coalface.

We need to empathise with a broad range of people – often in personally confronting circumstances – and offer counsel.

I know that many of my clients seek face-to-face advice at 'challenging' life moments: everything from divorce, to planning for events, transitioning to retirement, or just a sense of general financial chaos. On almost every occasion the discussion turns on issues about managing cash flow and debt, making emotional or anxiety-based financial choices or over-spending/under-earning and so on.

While there's always a technical element to these client interactions, more often than not, it's the psychological components that dominate the conversation.

In his 2012 book How to Worry Less About Money (School of Life), UK philosopher John Armstrong makes a useful distinction between 'money worries' and 'money troubles'.

"Troubles are urgent. They ask for direct action," Armstrong says in the book's introduction.

Money troubles – such as paying off a massive credit-card debt – are usually solved in only a couple of ways: either you can pay it – by earning more or spending less – or you can't.

Money worries, by contrast, Armstrong writes, "are about what is going on in your head, not just what is going on in your bank account".

However, he says, the "culture of advice" is aimed at money troubles rather than worries.

"This is a problem because the theme of money is so deep and pervasive in our lives," Armstrong says. "One's relationship with money is lifelong. It colours one's sense of identity, it shapes one's attitude to other people, it connects and splits generations; money is the arena in which greed and generosity are played out, in which wisdom is exercised and folly committed.

"Freedom, desire, power, status, work, possession: these huge ideas that rule life are enacted, almost always, in and around money."

Phew. That's heavy stuff (but perhaps what one would expect from an English philosopher).

But I think Armstrong has nailed one of the fundamental challenges facing financial planners today: we are trained to provide expert technical assistance; we are usually asked – albeit not always directly – to offer psychological counselling.

Most financial advisers deal with this contradiction in an ad hoc way.

We do OK.

We are – most of us – people people. We smooth things over. We use humour to defuse tension. We match our language to our clients. We sympathise when they are grieving...

Empathy comes in handy for financial advisers, and it can go a long way.

But maybe, just maybe, a measure of formal psychological training could help us go a whole lot further down the road to understanding our clients.

I'm not suggesting that financial advisers need to be fully-qualified psychiatrists – I'm not asking for the power to dispense Prozac with the plan.

However, instead of focusing almost exclusively on the technical and legally-compliant aspects of our education, we as an industry could benefit enormously from learning some of the behavioural insights that modern psychology has carved out from decades of intellectual and experimental effort.

I recently contacted a number of financial planners here in Australia who hold both financial planning and psychology qualifications. All of them offered glowing reports about how the two subjects meshed together so well. (Can we call such a mashed-up discipline 'psycho-finance'? Maybe we need a better name.)

One of those psychologically-trained advisers, Caroline Rees, a Certified Financial Planner, told me: "Understanding how the brain processes concepts as well as how personality types can play a role in shaping decision-making has been a huge aid to me in my time as a planner."

I have never stopped educating myself during 20-plus years in the industry. I have done everything from SMSF specialisations to margin lending and geared investments studies to mortgage management qualifications to earning a real estate licence.

All of these have made me a better, technical financial planner. But none (that's right, not one) of these educational upgrades has helped me develop the single most important skill any adviser needs to thrive: a deeper understanding of human beings – those infuriating, fascinating entities that we are lucky enough to call our clients.

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Philippa Sheehan, managing director, MyPlanner