Something greater than financial advice
Earlier this year and shortly before I surrendered my Financial Services Authority permission to provide financial advice I met Bruce and Theresa, my long standing clients of some thirty years. The meeting was arranged to say farewell and to close our professional (but not social) relationship, and to finalise their plans for their retirement.
The meeting lasted for most of the day, and whilst their finances were on the agenda and were dealt with, much of the meeting revolved around how they were going to live in retirement, what they could and should do, how they were going to maintain family ties, decisions about their house and nearly all aspects of life in retirement. We also covered their relationship with money, dealing in particular with how to change their working life attitude of saving and prudence to finding the courage to spend their time and money on making the most of their lives in retirement. Whilst I was able to demonstrate mathematically that their income and assets were more than sufficient to allow them to live a fulfilled life in retirement, we had to deal with some deep emotional blocks to spending, in particular the fear that they would run out of money.
This was far more than financial advice. It amounted to ‘financial life coaching’, a relatively new professional field that treats money and life as intertwined and is truly holistic in its approach. It is an approach I started to adopt in 2006 after training with the Kinder Institute of Life Planning in the US. In truth, most of my client interventions since then have been holistic, coaching interventions. I have found that the coaching element is of far greater value to my clients than arranging financial products, which, within the context of most financial life plans, should be simple, low cost and commoditised.
Financial coaching is for everyone?
I have witnessed the impressive changes that financial life coaching can bring about in clients, and I would argue that everyone needs a life coach. In reality, the service is less suited to what Ross Honeywill and Christopher Norton call ‘Traditionals’ and more suited to what they call the ‘New Economic Order’ (NEO) (Honeywill, Ross and Norton, Christopher (2012). One hundred thirteen million markets of one. Fingerprint Strategies.), and what James Alexander and the late Robert Duvall in their research for the launch of Zopa (the first peer-to-peer lending business) called ‘Freeformers’ (Digital Thought Leaders: Robert Duvall, published by the Digital Strategy Consulting).
Two types of consumer
These distinctions are important in the context of a key concept about money, which I will cover shortly. First, lets consider the differences between the two groups. Honeywell and Norton describe ‘Traditionals’ as primarily interested in the deal, features and status. A sub-group of ‘Traditionals’ is ‘High Status Traditionals’ for whom status is the highest priority. They cite Donald Trump as the epitome of a High Status Traditional.
Honeywill and Norton contrast ‘Traditionals’ with NEOs. According to the authors, NEOs buy for authenticity, provenance, uniqueness and discovery. They are more likely to start their own business, are usually graduates, see the internet as a powerful tool for simplifying their lives, understand investing (money and personally), and are repulsed by conspicuous consumption. They are highly individual and express their own individual values through what they say, buy, do and who they do it with.
Honeywill and Norton discovered NEOs in the US and wrote about them in 2012 but Robert Duvall and James Alexander arrived at a similar concept in the UK in the early 2000s. In their research prior to launching Zopa, Duvall and Alexander identified a group of people they called ‘Freeformers’, a new type of consumer ‘defined by their values and beliefs, the choices they make, where they spend their money. They refuse to be defined by anyone, they don’t trust corporations or the state. They value authenticity in what they buy and they want to lead “authentic” lives.’ Duvall and Alexander saw these people as the core of an IT society based on self-expression, choice, freedom and individuality.
Two attitudes to money
In my own career as a financial adviser, planner and coach I have identified two prevailing attitudes to money. There are those who see money as an end in itself, and those who see money as a means to an end. I cannot admit to having carried out detailed research on this, but I have seen enough to make a reasonable assumption, namely that it is the Traditionals who see money as an end in itself, and it is the Freeformers who see money as a means to an end. (At the risk of upsetting Messrs Honeywill and Norton and conscious that NEOs and Freeformers are not exactly the same, I am going to refer to both simply as Freeformers in the rest of this paper as I feel the word is a better and more evocative description of the species than NEOs.)
In very general terms, Traditionals are intent on making their money go as far as possible by getting the best deals and features. Psychologically, they equate money with ego and status. Conversely, Freeformers use their money to achieve their individuality and authenticity and to express their values. Whilst they do not spend entirely irrespective of cost, their spending criteria are written in terms of authenticity, provenance, design, uniqueness and discovery.
Mapping attitudes to life and money
In my own experience Traditionals respond to financial advice, but not financial planning or coaching, whilst Freeformers only start to value financial advice when it is supported by an individual and unique life and financial plan born out of a deep coaching and planning process.
Putting it another way, Freeformers understand that the link between life and money goes deep, so respond well to coaching that addresses their life and money. Traditionals, on the other hand, do not harbour such a powerful connection between life and money, and are less likely to respond to the concept of ‘financial life coaching.’ Traditionals form the key market for financial services institutions and packaged products, especially those that provide deals (discounts / competitive fees), features (pension plans with flexibility, for instance) and status (high risk, high returns). Freeformers are more likely to select a platform (an online service to aggregate all their investments and tax wrappers) and concentrate on selecting investments to suit their values and goals.
The spectrum of help with personal finances
In the UK and other parts of the world you can now find many different forms of help for your personal finances. Its a wide spectrum with financial advice at one end and financial life coaching at the other. In between, families and individuals can access financial planning, guidance, training, mentoring and education. Of course none of these are mutually exclusive and some firms or organisations will provide a combination so it is important to understand what is available and the limits and benefits of each.
Financial advice is product oriented. In the UK the Financial Conduct Authority (FCA), which regulates personal financial advice, defines financial advice as advice to buy, sell or switch a financial product. Whilst there is a regulatory requirement to ‘know your customer’ and ensure any advice is ‘suitable’, the thrust of financial advice is the sale of products.
A financial adviser must be authorised by the FCA and abide by its rule book.
Financial planning goes deeper than financial advice. It aims to ascertain a client’s short, medium and long term financial goals and develop a plan to meet them. The plan should be comprehensive and holistic. It should cover all areas of the client’s personal and family finances and recommendations in any part of the plan should maintain the integrity of the plan as a whole.
The Financial Planning Standards Board (which sets the standards for the international Certified Financial Planning qualification) defines a six step financial planning process:
- Establish and define the client relationship
- Collect the client’s information
- Analyse and assess the client’s financial status
- Develop financial planning recommendations and present them to the client
- Implement the financial planning recommendations
- Review the client’s situation
Although one of the practices in Step 2 is to ‘Identify the client’s personal and financial objectives, needs and priorities’, the process is primarily about finance rather than life.
Certified Financial Planners must also be authorised to provide financial advice by the regulator of the country in which they operate.
(Financial Planning Standards Board: Financial Planning Practice Standards available at https://www.fpsb.org/standards-for-the-profession/framework/ )
Financial life planning
We are beginning to see a number of different style here. Arguably, George Kinder and the Kinder Institute lead the field and Kinder has developed the EVOKE five step financial life planning (or simply ‘life planning’) process consisting of:
- Exploration: getting to know the client in the deepest sense
- Vision: working out the client’s life goals, values, projects etc
- Obstacles: dealing with practical, emotional and financial obstacles preventing the client achieving their vision
- Knowledge: providing the internal and external knowledge to achieve the client’s goals
- Execution: coaching the client in the execution of their plan
(Kinder, George and Galvan, Susan. Lighting the Torch: The Kinder Method of Life Planning. FPA Press 2006)
There are two important distinctions between financial planning and life planning: life planning takes as its starting point the client’s life rather than their money, and life planning contains the important middle step of dealing with obstacles, which is absent in the financial planning process.
Life planners are usually (but are not required to be) authorised financial advisers.
Financial literacy is generally poor and there are a growing number of organisations and institutions in the UK dedicated to improving financial literacy. The UK Government has attempted to do this through the Money Advice Service (www.moneyadviceservice.org.UK/en) and in 2014 financial literacy education became part of the National Curriculum in England and should be a compulsory part of every school’s timetable (Long, Robert and Foster, David. Financial and enterprise education in schools. House of Commons Briefing Paper number 06156, October 2016).
Financial literacy is not financial advice or planning, and does not have to be provided by a financial adviser or planner.
Financial guidance is a relatively new concept, given weight by the Financial Conduct Authority in its review of the financial advice market (HM Treasury and Financial Conduct Authority. Financial Advice Market Review Final Report. March 2016) which defines it as any form of help provided to consumers which is not regulated financial advice. The FCA sees ‘guidance’ as a way to tackle barriers to consumer access to advice, the three key barriers being affordability, accessibility and the threat of liabilities and consumer redress to advisers.
The FCA cites a number of options, including basic advice, simplified advice, streamline advice, general and generic advice and guidance. Some of these will require authorisation, others not.
There does not appear to be an authoritative definition of financial coaching / financial life coaching. The International Coach Federation definition of coaching is:
Partnering with clients in a thought-provoking and creative process that inspires them to maximize their personal and professional potential.
My own definition of financial life coaching is:
Financial life coaching is a process to help a client move from where they are now to a better personal and financial position as defined by their beliefs, attitudes, values, behaviour, actions and relationship to money.
Personally, I have long believed that you cannot help people move to a better personal position without addressing their finances, and people cannot better their finances without having a clear idea of what their finances are to be used for in the short, medium and long term. I know I am not alone in this opinion. When I have talked to psychotherapists and counsellors about my work I have often been greeted with enthusiasm as so often their clients have been confounded in their best intentions by financial issues.
In practical terms, it is possible and desirable to structure the personal finances of a household so they support and advance the personal goals, values and interests of the household. However, this implies a need to understand what those goals, values and interests are.
This definition makes clear that the process is holistic in the truest sense of the word, covering our thoughts, feelings and actions, dealing with right and left brain activities and working in the entire field of a client’s life. It also deals not so much with money per se, but with our relationship to money. It is our relationship with money that defines how we use it, not how much we actually have or do not have.
Lynn Twist, a global activist committed to alleviating poverty and hunger and supporting social justice describes how the Achuar people, an indigenous group of people from deep in the Amazon rainforest have lived without money for thousands of years (Twist, Lynn (2003). The Soul of Money: Reclaiming the Wealth of our Inner Resources. WW Norton, New York). Not just lived but thrived on the social currency of reciprocity rather than the financial currency of cash.
I think we have to be careful here and not confuse ‘better’ with ‘more’. Thought leaders such as Lynn Twist and Brené Brown are adamant that scarcity (‘I don’t have enough money / time / sleep / leisure / work / kudos / friends etc) is the root cause of much of the world’s dissatisfaction. But wanting ‘more’ is different from wanting ‘better’. From a moral and ethical point of view, we arguably all have a responsibility to make better not only our own lives, but the lives of others. That, however, is very different from wanting more of anything simply for the sake of wanting more, particularly wanting more in order to stay connected to our peers.
Indeed, I see financial life coaching as a process that helps people deal with the problem of scarcity by helping them to let go of their own excessive demand for whatever commodity they think they are lacking, not by trying to increase the supply of the commodity in the first place.
Others will say that trying to ‘better’ our lives is a futile exercise, that we should just accept our situation as it is. Trying to lead a better life takes energy, is exhausting and requires so much focus on a goal or goals that we cease to be aware of the wider (and probably deeply enriching) environment around us.
The demand for financial life coaching
I built my business, Planning for Life, on the back of demand for advice that went far deeper than financial advice as defined by the FCA. Neither I nor my clients called it ‘financial coaching’. We did not even realise the term existed, but that is what I was doing.
Where did this demand come from, and does it still exist? I would argue more than ever, for many reasons.
‘Life is s**t’
I don’t actually believe this, nor do most people. However, they do recognise that ‘the more the planet is fractured, the more distress individuals feel inside’ as leadership and life coach Danielle Marchant puts it when commenting on the 2016 ICF Coaching Study (International Coaching Federation 2016 Coaching Study Executive Summary available at http://www.coachfederation.org ). This study suggests that there are now 65,000 people working globally as professional coaches, or using coaching in a management or leadership role. The distress Danielle refers to precipitates a demand for a less structured form of help than, say, skills development or financial advice. It creates a demand for someone else to talk to, to be challenged, to brainstorm ideas, to be accountable to, to find meaning in life. In particular, it precipitates a demand for help in overcoming the practical, emotional, professional and financial obstacles to a better life.
Reacting against commoditisation
Honeywill and Norton discuss this at length. They argue that the demand amongst NEOs for a more authentic, genuine, individual life is partly a reaction to the uniformity of commoditisation. Why is this important? First, because in a highly commoditised, globalised world its difficult to actually live the NEO or Freeformer lifestyle and there is a growing demand for help in achieving this. This is not just about money, it is a whole lifestyle issue and if individuals are not achieving their desired lifestyle they will seek appropriate help to get there in the form of life coaching and, by extension, financial coaching.
Second, if you hate commoditisation, you probably hate traditional financial services and look for a more individual, authentic and highly personal form of help which financial life coaching can provide. You will also want to seek help from a like minded individual who shares your ambitions and values, and probably has been through – and is prepared to admit to having been through – life’s downs as well as up. You will seek help from someone whose expertise and provenance is founded more on their own life struggles than on their technical expertise.
The search for meaning
In Western economies many people have reached the pinnacle of Maslow’s hierarchy of needs – self-actualisation. Their physiological and safety needs are met through the purchase of basic commodities. Their needs for love and belonging are met through relationships and brands. Their need for esteem is met through their work or profession. What is left? The search for self actualisation – or meaning and empathy as commentators such as Professor Rowland Smith and Bernadette Jiwa put it.
Maximising your potential or doing the best you can is a little more complicated than building a portfolio, and comes down to answering questions such as ‘Why I am here?’, ‘Who I am?’, ‘What is my purpose and relationship to the rest of the world?’. Identifying gaps and filling them is rich material to work on with a coach and is undoubtedly a key driver of the demand for coaching.
Financial life coaching has a far wider scope than financial advice. Brendan Llewellyn, a UK commentator on financial services, wrote recently of how ‘for most people, money concerns income, expenditure, borrowing and savings’. He goes on to say that, although the financial services industry concentrates on the last two, ‘for most people income and expenditure are the most important variables.’ Llewellyn goes on to talk about the need for a new type of financial adviser, a counsellor or guide who would help people increase their incomes, look at personal development and retraining, seek new employment opportunities, analyse and improve expenditure patterns.
The focus of our interventions should be on where the client really needs help, namely balancing the work / income and life / expenditure equation. In recent years another layer has been added to this: sustainability. Freeformers in particular are environmentally aware and want to live sustainably. Traditional financial services concentrates on investments and borrowing when what people need is help in controlling their cash flow, spending smarter and doing it sustainably, which is a clear role for financial coaching.
Repairing the divorce between life and money
It is my contention that over the last 30 or so years financial services have become more left brain, commoditised and productised. This has resulted in the steady separation of life and money and a shift in emphasis towards the concept of money as an end in itself, rather than a means to an end. Much financial advertising is based on returns and the efforts investment teams make to be seen as the top performing fund in a sector are phenomenal.
High early surrender and switching rates testify to the fact that financial products tend to be chosen for their short term performance rather than the long term suitability in a life plan.
However, people are beginning to see through this and I was often gratified by how many of my clients appreciated their portfolios being structured round what we term the Cascade, which recognises the pros and cons of the main financial asset classes and allocates money between them based on the client’s short, medium and long term needs for cash, rather than for the maximum returns (which also of course incorporate the maximum risk).
As long as traditional financial services continue to be driven by growth and returns it will not reconnect with life. However financial coaching, which seeks to reunite life and money and build a working personal relationship with money, can do much to repair this divorce.
Dealing with obstacles
Traditional financial services and even certified financial planning do not address the matter of obstacles to achieving a client’s goals or desired lifestyle. We only have to look at our own lives to see that our struggles are usually around dealing with practical, emotional, professional and financial obstacles to achieving a better life. Financial life coaching can fill this gap.
A natural extension
The concept of coaching is becoming more familiar in home life as well as business life. After all, we hire coaches in a number of areas today, including leadership, business, sports, health and life. Dealing with personal finances is no less challenging than, for example, staying fit or building a business and lends itself to coaching. In my experience, clients came to me for this very reason, even if they did not recognise or understand that it was financial coaching rather than financial advice that they sought.
Not the Listening Bank
It used to be said that the average length of time between the start of an adviser / client meeting and the adviser starting to sell a financial product was ninety seconds. Whether there is truth in that I don’t know. However, I do know that individuals shun financial advice because they don’t want to be the subject of a hard sell. What they want is someone to listen to them and to council them objectively and independently.
On many occasions I have sat with couples hardly saying a word, just listening to them talk to me and each other in an empathic, secure environment. At the end they would often thank me and talk about how in all their years of marriage they had never had that sort of deep and meaningful conversation.
People want to be heard, to be able to tell their stories to someone prepared to listen and help them to understand the meaning of those stories.
Go to a financial coach before a financial adviser
Financial products such as savings accounts, loans, mortgages, pensions, and investments fulfil an important part of any family’s financial plan and belong firmly in the field of expertise provided by financial advisers. So, why would you go to a financial coach first? Here are just a few reasons:
- The scope of financial coaching is much wider than financial advice; ultimately it is about getting life right then building a sound framework for financial products
- In spite of those financial ads that tell you a bank account or other financial product is the route to freedom, it is the deep inner journey around life and money that financial coaching will take you on that is the true source of freedom
- Coaching will provide you with new ideas and new perspectives on life; you will brainstorm obstacles and assess different scenarios before committing to financial products
- You will be able to make informed decisions about your life and money and minimise the probability of making serious mistakes
- Your existing norms and attitudes will be challenged
- Limiting beliefs and self-beliefs will be identified and addressed
- Bad financial habits will be identified and addressed
- You will become accountable to someone other than yourself
- You will build a life based on a deep exploration and statement of your most important values
- You will have the opportunity to explore how your money can be used to express your humanity and ideals, how you can make ‘contribution’ your primary driving force instead of ‘consumption’
- Your relationship will be based on trust, authenticity and partnership; you will build a support team to help you on your journey
- A coach will give you a highly personalised service, especially compared to the upcoming alternative of robo-advice
- You will develop a financial framework that supports your life goals which you can either fill with financial products yourself or use as a brief for a financial adviser to do the work for you
- Life will become simpler, different and under control and you will become financially well organised
By coincidence, I find myself finalising this article on Black Friday, 25th November 2016, the day after Thanksgiving Day in the USA. Print, television and online media are awash with adverts and encouragement to go out today and buy, buy, buy. I have no doubt that savings accounts and investment portfolios will be raided, credit cards and overdrafts will be pushed to the limit and for what? The chances are that much of the stuff purchased today will be used once then relegated to the back of a cupboard or attic. By the time we have got through Christmas and New Year and into January many, many people will be suffering from a monumental financial hangover.
This isn’t about money. Its about our relationship to money, our attitude to life and our deep seated hopes and fears about our lives. But these can be addressed and with guidance and coaching they can be changed to ensure people can lead more fulfilled lives in the knowledge that they are the masters of their money and not vice versa. Get to grips with life and financial relationships first, then go to a financial adviser with a clear plan and brief for your money.
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