In financial planning, it's not just about having expert knowledge and wisdom to dispense to clients; after all, if clients don't ultimately implement the recommendations and change their behaviors, then their situations will not improve. In fact, many financial planners experience frustration when client's won't act, and view the failure of clients to implement recommendations as a sign that the people must be "bad" clients. The implication is that it may be more productive for planners to seek out "good" clients instead - those who act promptly and see the value in the planner and his/her advice.
Yet research from Dr. James Prochaska and his colleagues in the field of psychology suggests that in truth, the process of changing behavior - whether with respect to eating healthier and exercising more, ending a smoking habit, or making better financial decisions - is far more nuanced. Not only does it often take more than just one dose of good advice to bring about significant and lasting behavior change, but just because someone has a meeting with a professional does not necessarily mean that person is really even ready for change in the first place. Accordingly, an ideal process for working with clients may entail first understanding what stage of change the client is in, and then adapting the advice process to help the client move forward, from wherever he/she is at the time.
The most important implication, though, is that it may no longer be appropriate to simply view clients who don't implement as "bad" clients. Instead, a greater responsibility may rest upon the professional practitioner to help clients, regardless of where they happen to be in the process of change, to move forward. In turn, this means that it may be time for financial planning training to be improved, to develop the understanding and skillsets necessary so that planners can not only inform clients of what needs to be done to improve their financial situation, but also help motivate them to actually do it!
What Is A “Good” Client Anyway?
The caveat of this viewpoint is that it implicitly assumes that the client was willing, ready, and able to implement the recommendation and change his/her behaviors, and that the client simply failed to follow through and do so - which also implies that a failure to act "must" be the failure/fault of the client. Yet the research on behavior change indicates that in reality, all people go through several stages in the process of changing their behavior, and not all clients necessarily show up in the financial planner’s office at the ready-for-action stage we typically assume!
Prochaska’s Stages Of Change
The leading researcher on understanding how people change their behavior is Dr. James Prochaska, who with his colleagues has published “Changing for Good”, arguably the definitive book on the subject with a comprehensive view of decades of studies by Prochaska and his colleagues.
What they found in their research is that while we classically think of behavior of something of immediate action – we decide we’re going to make a change, and act to do so – in reality the process is far more nuanced. In fact, his research found that change entails a six-stage process:
Termination – The point at which we no longer need to actively maintain a change; the new behavior has become “permanent”
While the context of Prochaska’s stages of change was how people succeed in changing behaviors like smoking or poor exercise and dietary habits, the reality is that the stages of change map remarkably well onto many changes that financial planning clients consider. For instance, suggesting that a client needs to spend less now and save more for retirement, or redirect discretionary income from consumption to purchasing critical insurance, takes the client through a similar process. For instance, the client who needs to reduce spending may first be unaware of needing to change (pre-contemplation), then become aware of the importance of making a spending change (contemplation), then consider how to change spending (preparation), then implement the spending change (action), then sustain the spending change (maintenance), and only after a long period of time finally assimilate the new spending level as their new lifestyle (termination).
Whose Fault Is It, Really?
The key point of Prochaska’s research was that it illustrated how unproductive it is to blame the person for failing to implement an important change – even if it’s clearly in the person’s interests to do so (as is the case with demonstrably self-destructive behaviors like severe obesity, smoking, or alcoholism). Instead, the research found that failure of many change programs, from ending smoking to improving exercise and dietary habits, was primarily due to a misunderstanding of how change occurs: specifically, the erroneous belief that change is just about drawing up the necessary action steps and putting them forward for people to implement. In fact, Prochaska finds that one of the greatest reasons why change fails is because people are pushed to the action stage before they’ve progressed through the earlier stages and truly become ready to make a change.
In a similar vein, Prochaska’s research suggests that when clients don’t implement a financial planner’s client-centric recommendations, the problem may actually lie not with the client, but with the planner failing to properly guide the client through the stages of change! For instance, Prochaska has found that if clients are in the precontemplation stage, they may needed assistance for an extended period of time in simply helping to make them aware of the need for change – raising their consciousness about the issue and providing education – before moving on to the later stages. Just explaining the problem once is virtually never enough, just as the country's obesity problem is not solved the first time "eat less and exercise more" is suggested as a solution. Once an individual recognizes the need for change, then – and usually, only then – does an emotional appeal help to move the client forward further; in fact, by this stage the decision-making process shifts from a focus on the pros of making a change, to the cons of not changing. And only then is it time to move beyond education and stirring motivations, to actually begin considering specific trade-offs and preparing action steps for implementation.
Time For Better Training?
To be fair, the standard training for financial planning does not include the study of behavior change and Prochaska’s research, but perhaps it should, as it maps so cleanly onto the core of what good financial planning is all about. In fact, arguably behavior change is the very essence of real financial planning, as there is little value in using expert knowledge to craft recommendations if the planner is not also trained in how to guide the client through the changes necessary to implement them. Or viewed another way, financial planning isn't just about telling clients what to do; it's also about motivating them to do it!
And despite this reality, it's notable that "effectiveness in helping clients to change their behaviors" is rarely tracked or measured in any way in most financial planning firms. Yet given the importance of outcomes, perhaps “time from recommendation until implementation” actually should be something tracked in a financial planner’s Client Relationship Management (CRM) software. After all, it’s hard to improve the results if they’re not being measured in the first place. Once you can measure that only 68% of clients fully implement recommendations, and that it takes them 7.4 months on average to fully complete all the recommendations, is it possible to work on solutions to really improve client outcomes.