Even though in the end much of the success in a financial planning engagement ultimately comes down to behavior change - helping a client alter whatever he/she was doing towards something that will better allow them to achieve their goals - there is still remarkably little education and training for financial planners focused directly on behavior change. Instead, advisors must turn to resources from other industries and professions to find ideas and best practices about how to help their clients actually make the behavioral changes necessary to achieve their goals.

A recent new book, however, makes headway in this regard. "Switch" by Chip and Dan Heath, provides one of the most accessible books yet on understanding behavior change and the techniques that can help to bring it about. Using a fantastic series of metaphors, the Heath brothers liken the battle in our brains between the rational and emotional sides as an elephant and its rider - noting that at best, the rational rider can help to steer the direction that the two will go, but that ultimately it's the energy and drive of the elephant that will dictate most outcomes. Accordingly, the authors suggest that the best way to ultimately achieve behavior change is through a combination of efforts, to direct the rider, motivate the elephant, and shape the path that the pair must follow to help guide the outcome.

The book provides a remarkably good framework for financial planners, who arguably spend a great deal of time oriented towards directing the rational rider to long-term goals, but don't spend very much time at all focused on how to motivate the elephant or shape its environment. In fact, many planners are notorious for focusing entirely on the "rational" solutions without engaging "messy" client feelings (a classic "rider-centric" planning approach), and we often spend almost no time at all thinking about how clients can reshape their environment to help themselves succeed (for instance, by encouraging clients to find a social support group for their problematic spending behaviors, or suggesting that they think about relocating to a neighborhood or getting a different group of friends who will be less likely to encourage their bad spending behavior). While the book "Switch" doesn't necessarily provide a lot of new and original research (at least for anyone who's read the works of many of the primary researchers in this space from Daniel Kahneman to James Prochaska), it provides what is easily one of the most accessible treatments of the topic that can help planners to think fresh about how they might incorporate more behavioral change techniques into their own practices!


Advise The Rider, Steer The Elephant, And Shape The Path

In their book "Switch: How To Change Things When Change Is Hard", Chip and Dan Heath dive into the topic of behavior change and how our brains think and operate when making decisions. As we know from a great deal of research from Daniel Kahneman and others, the brain is controlled simultaneously by two systems. The first, sometimes called System 1, is an emotional and feeling system, steered almost entirely unconsciously and driven by an intuitive system that often takes some not-so-accurate shortcuts along the way. The second, known as System 2, is the logical, rational system, which carefully and consciously weighs and considers options and choices when making a decision. The bulk of our decisions are actually made by System 1 - which is good, as the decisions happen fairly automatically without a lot of stressful thought and worry - while with some energy we are generally able to exert the more effortful System 2 to make what we deem to be important decisions.

The Heath brothers describe this with a remarkably effective metaphor (borrowed from Jonathan Haidt's "The Happiness Hypothesis"): imagine your brain is a combination of a giant elephant, with a small rider perched precarious on top and trying to steer it. The elephant represents System 1, and as you might guess by its size and might - and how hard it can be to point one in a particular direction - it tends to dominate the decision-making process, and progress towards any goal (good or bad) requires the elephant's energy and power. The rider, looking out from above and making rational decisions about the long-term direction of where the elephant should go, is System 2. With enough effort, the rider may be able to exert some influence on the direction of the elephant. But only if the elephant can remain calm, and only if the rider exerts a great deal of effort in the process (which can only be done for limited periods of time before getting tired).

In this context, the Heath brothers make the point that when trying to change our behavior, we need to consider both the rider and the elephant. Any purely rational approach to decision-making and behavior change - that focuses on the rider but ignores the elephant - cannot be sustained, as sometimes "the rider simply can't keep the elephant on the road." Instead, efforts to bring about change must motivate the elephant as well, recognizing the role that emotions and not-always-rational thought can play in the process (and that because the rider gets exhausted, finding ways to engage the elephant in the right direction is crucial). In addition, the authors also make the point that there's a third factor - regardless of where the elephant and rider wish to go, their collective behavior can be changed by shaping the path down which they travel. By limiting, adjusting, or altering the environment in which the elephant and the rider find themselves, behavior change can also be achieved... or as the authors state, "what looks like a people problem is often a situation problem" instead, and that "to change someone's behavior, you've got to change that person's situation."

Given this framework - Direct the Rider, Motivate the Elephant, and Shape the Path - the Heath brothers recommend a series of 9 strategies to help change behavior:

Direct The Rider

Follow The Bright Spots. Investigate what's working and clone it.

Script The Critical Moves. Don't think big picture, think in terms of specific behaviors.

Point To The Destination. Change is easier when you know where you're going and why it's worth it.

Motivate The Elephant

Find The Feeling. Knowing something isn't enough to cause change. Make people feel something.

Shrink The Change. Break down the change until it no longer spooks the elephant.

Grow Your People. Cultivate a sense of identity and instill the growth mindset.

Shape The Path

Tweak The Environment. When the situation changes, the behavior changes. So change the situation.

Build Habits. When behavior is habitual, it's "free" and doesn't tax the Rider. Look for ways to encourage habits.

Rally The Herd. Behavior is contagious. Help it spread.

Implications For Financial Planning

The goal of "Direct the Rider, Motivate the Elephant, and Shape the Path" is a remarkably effective metaphor for effective financial planning, but also serves as a reminder that as financial planners we tend to do some parts far better than others.

Arguably, financial planners are quite good at directing the rider. We work hard to identify the long-term direction to head and "point to the destination" we're trying to help clients reach (fund retirement, send kids to college, achieve certain legacy goals). The act of creating a financial plan and its associated recommendations and action items are the essence of "scripting the critical moves." And in general, we've learned enough about what works and what doesn't in pursuing those goals - effective savings tools and techniques, planning strategies, etc. - that we know how to identify the "bright spots" of success that work for some clients and apply those approaches to work with others, too.

On the other hand, when it comes to motivating the elephant, the effectiveness of financial planning is less clear. The efforts of life planning can help clients to "find the feeling" but are not adopted widely, and can be a rather time- and labor-intensive way to motivate the elephant some clients; however, techniques like using storytelling to engage a client more emotionally could be implemented more widely. Shrinking the change is incredibly underutilized, but perhaps the most easily applied technique in the financial planning context. For instance, don't focus on saving for retirement in 40 years, but on saving $10,000 this year (and celebrate the success when it's done); make paying down $50,000 of debt less about paying off the whole debt, and more about paying down just $5,000 over the next year (the debt snowball technique is perhaps another very effective way to shrink the change). The metaphor of "growing your people" is aimed more at organizations and not necessarily individuals, but has relevance for financial planning as well; how many potential clients have given up on saving because they've convinced themselves they're spenders and indebted beyond repair, who could be greatly aided by a mindset shift that they are capable of gaining control of their debt and spending problems and adopting a saver's mentality?

Perhaps the greatest opportunities, though, are for financial planners to be involved in shaping the path, a context for financial planning where most spend little effort, despite the clear potential impact on client outcomes. As the Heath brothers note, when the situation changes, so too does the behavior. Thus, for instance, helping clients to get control of their spending might involve helping them to get rid of (or cut up!) credit cards altogether, automate their saving so money never hits their checking account (one of the few ways some planners do tweak the environment), or in the extreme even encourage clients to relocate to a different neighborhood (where they can better afford to live and there are fewer Joneses to keep up with). Building habits is another area where planners often do not spend a great deal of time, even though the behavior change research makes it clear that monitoring and rewarding good behavior (and occasionally punishing bad behavior) is crucial to helping healthy new habits to form; at a minimum, advisors should perhaps focus on spending more time and effort celebrating recent client successes to encourage the behavior, instead of all-too-often just updating and looking forward to the next step of the plan without reinforcing the (successful) habits that have led up to that point. Similarly, because behavior is contagious, planners should perhaps consider helping clients strategize about how to engage their social support system to help them through their most difficult financial changes and towards their biggest goals; in the weight loss context, social support systems have been recognized as being crucial (everything from workout buddies to Weight Watchers support groups), yet they are rarely utilized or encouraged in the financial planning context.

The bottom line, though, is simply this: in a world where almost all financial planning success ultimately comes down to client behavior change, as planners we still don't really have a great deal of education and training on how to best help clients change their behavior. While the ideas in Switch aren't entirely new - the Heath brothers are not behavior change researchers themselves - the book does a remarkably good job at conveying the ideas and concepts effectively, in a manner that planners can then consider in their own practices. In fact, if you're looking for a book that gives a very accessible discussion to much of the key research on behavior change, "Switch" would definitely be at the top of my list (though for those who want a deeper dive, I still highly recommend Kahneman's "Thinking, Fast and Slow" as well as Prochaska's "Changing For Good" and you can see more of my reading recommendations here).


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