New study explores how planners can spot financial stress triggers

A traditional "siloed" approach to financial planning fails to guide clients through the stress and trauma often underlying their relationship to money and wealth, according to a new study.

In a paper published last month in Financial Services Review, the journal of the Academy of Financial Services, six authors from an artificial intelligence-powered wellness service called Living Centerline described a new planning practice model based on "psychophysiological finance." In short, the authors called for more research and wider adoption of planning that speaks to the troubled mental and physical factors connected to many people's spending and investing habits, which they acknowledge poses challenges in a profession that often casts some of those circumstances as outside of its sphere of expertise.

On the other hand, forms of behavioral finance are also gaining steam across the profession, whether through new professional development requirements such as the CFP Board adding the psychology of planning to its exam three years ago or increasingly plentiful research into how supposedly non-financial topics are crucial to wealth management. While the study's conclusion called for "adaptive digital health technology" that includes the type offered by the authors' employer, its analysis added to a wealth of resources for planners seeking to learn more about the psychology of money and incorporate aspects of that field into their firms.

"By monitoring a client's psychological, physiological and financial situation in real time, it is possible to identify situations where one wellness domain reaches its allostatic load and becomes incapable of self-regulation," authors Robert Hanlon, Paul Leher, Alexander Cohen, Eric Miller, Monte Hancock and Robert Mitchell wrote.

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Avoiding the triggers

"This is important because the current siloed approach to providing advice seldom accounts for stressors outside a financial planner's practice specialty," the authors continued. "A siloed planner may provide useful guidance, but without knowledge of the other wellness domains, the advice may negatively affect how the client deals with other stressors."

In one of many passages referencing the growing number of academic papers on such topics, the authors cited the hypothetical example of a "siloed" planner whose budgeting advice to an overspending client could "backfire and cause the client even more stress and anxiety." 

"Without further exploratory work, there is no way for the financial planner to know that the client uses shopping to deal with family trauma," the study said. "The more stress, the more spending on luxury goods."

The paper could spur more financial advisors to study psychological and behavioral factors that affect money, according to Billy Spencer, a director and wealth manager from the Boston office of Crestwood Advisors, a registered investment advisory firm. Spencer has obtained the "certified financial behavior specialist" designation from the Financial Psychology Institute, and he studied behavioral finance and financial therapy through courses and a master's degree programs led by some of the researchers cited in the study at Creighton University and Kansas State University. Now that psychological topics show up on the CFP exam, he recommended that planners eager to begin their studies in this area read a book published by the board called "The Psychology of Financial Planning," among other research.

Some of the terminology may sound intimidating, and experts do point out that there are times when advisors should refer a client to a therapist or a psychiatrist. However, some best practices that planners like Spencer are already using are as simple as asking a client an open-ended question about what they would like to discuss in a future meeting, noticing that the customers' hands are cold in a handshake or even providing them with driving directions to the office, he noted. All of it acts to "remove some of that cognitive load" that many people feel when they're discussing money, Spencer said.

"Money can bring up a lot of anxiety. … They might be coming into a situation really not wanting to have that conversation," he said, noting the work of former Financial Therapy Association president and Texas Tech University professor Sonya Lutter about the potential warning signs of wealth-related stress. "If you go to shake someone's hand before a meeting, and it feels really cold, they may be feeling a lot of anxiety."

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With these caveats

The study suggested that planners could ramp up their services to clients by tying together data science, predictive analysis, stress management and more traditional areas of focus in the profession like asset management and retirement advice. But the authors warned against seeking to put all those together overnight.

"In summary, adopting the model may require some financial planners to broaden their scope of practice and carefully consider a range of ethical issues," the authors wrote. "While this model has the potential to help a financial planner provide more comprehensive advice by addressing factors associated with a client's financial, psychological and physiological well-being, planners must practice within their expertise, safeguard client data, and ensure that all services provided are in the client's best interest (Chene et al., 2010; Smith, 2009). Comprehensive training, collaboration with health and medical professionals and transparent communication are essential to successfully and ethically adopting this practice model."