A Financial Planner's Most Important Job Isn't What You Think It Is

In the past few years, many of us in the financial planning profession have been coming to terms with a difficult truth: Our clients' long-term financial success is based less on the structure of their portfolios than it is on their ability to adapt their behaviors to changing economic times.

An increasing number of financial planners are awakening to the fact that our primary business is not producing financial plans or giving investment advice, but rather caring for and transforming the financial and emotional well-being of our clients. And at the very foundation of financial and emotional well-being lies one’s behavior.

I've come to understand this over my own three decades as a financial planner, so I was pleased to see the topic of investor behavior featured at a national gathering of the National Association of Personal Financial Advisors in Salt Lake City last May. One of the speakers was Nick Murray, a personal financial adviser, columnist, and author.

"The dominant determinants of long-term, real-life, investment returns are not market behavior, but investment behavior," Murray told us. "Put all your charts and graphs away and come out into the real world of behavior."

This made me recall similar advice from a 2009 Financial Planning Association retreat, when Dr. Somnath Basu said, "Start shaking the dust off your psychology books from your college days. This is where [the financial planning profession] is going next."

Most advisers will agree that, while meticulously constructed investment portfolios have a high probability of withstanding almost any economic storm, none of them can withstand the fatal blow of an owner who panics and sells out.

This is where financial advisers' behavioral skills can often pay for themselves. Murray, who calls financial planners "behavior modifiers," reminded us that we are "the antidote to panic."

Murray said most advisers will try everything they can do to keep a client from turning a temporary decline into a permanent loss of capital. He wasn't optimistic, however, that the natural tendency of investors to sell low and buy high will stop anytime soon.

His final advice was blunt. "Think of your clients who had beautifully designed and executed investment portfolios that would have carried them through three decades of retirement, who started calling you in 2008 wanting to junk it and go to cash. How many of these people have called you since then and tried to do it again?"

I myself could think of several.

"How many times have they gone out on the ledge and tried to jump, and how many times have you pulled them back in?" Murray asked.

By now I could see heads all over the room nodding.

Then he delivered a memorable line: "I am telling you as a friend, stop wasting your time on these people." The heads stopped nodding. "Save your goodness and your talents for those who will accept help from you."

I have certainly learned, often the hard way, that helping people who aren't ready to change is futile. Yet I disagree to some extent with this part of Murray's advice. If clients have gone out on the ledge more than once, but have called me and accepted my help in pulling them back in, then together we have succeeded in modifying their behavior.

This is a far different scenario from that of a panicked client who refuses help by ignoring a planner's advice. If planners see our role as "antidotes to panic," we need to realize that, for some clients, the antidote may have to be administered more than once.

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Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.