It is widely acknowledged that there is both an ‘art’ and a ‘science’ to financial planning. Technical knowledge – the “science” – is crucial to delivering the technically accurate advice to clients. But the best advice in the world is meaningless if the financial advisor can’t master the “art” of delivering it in a skillful manner – leading a client to actually take action and improve their financial well-being. Yet despite its label as “art”, the reality is that how best to deliver financial advice advice can itself be subjected to scientific scrutiny. Which is beginning to happen, with the emergence of several “financial counseling laboratories” in educational institutions across the country.
In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – examines what a financial counseling laboratory is, and how researchers are using financial counseling laboratories to subject the ‘art’ of financial planning to scientific investigation.
A financial counseling laboratory is an environment in which financial planning, counseling, or therapy research can be conducted. The space itself is akin to the kind of office with tables and chairs that financial advisors might use to meet with their clients. However, the key feature of a financial counseling lab is that it contains some unobtrusive means of observation, such as one-way mirrors or cameras, allowing the interactions between a financial advisor and their client to be scientifically measured and tested (and sometimes also monitored by students who may be gaining practical observational training, or even engage in the supervised practice of their financial planning skills).
The existence of financial counseling laboratories is important given how conducive they are to conducting highly relevant research for practitioners about how to actually be better financial planners, and get clients to engage their financial advice. In fact, some of this research is already beginning to emerge, delving into topics such as how the physical office environment influences client stress, how coaching techniques can help clients save more, and how measurements of brain activity suggest receiving counseling from an advisor with a CFP designation (relative to a non-credentialed advisor) may actually reduce stress during market declines! In essence, laboratory research – in a financial setting, examining questions relevant to advisors – may soon begin to shape the future of how financial planners interact with their clients!
Advisors who are interested in supporting or assistance with the research process have several options, from getting involved with organizations like the Financial Therapy Association (where many of the Financial Counseling laboratory researchers are engaged), collaborating with researchers themselves on future projects, contributing financially to organizations such as the CFP Board’s Center for Financial Planning, or contributing directly to the handful of universities which already have permanent on-campus financial counseling laboratories.
But the bottom line is that, for the first time ever, the “art” of financial planning itself is beginning to be subjected to scientific scrutiny, with the potential to yield important insights into the practice of financial planning, and how advisors can better get clients to actually adopt their advice!