The changing landscape of our population provides a huge opportunity for advisers and planners. But with this opportunity comes great responsibility.
People are living longer. The retired population is growing, and staying healthier for longer. Their aspirations don’t die with the end of their working life - their aspirations die when they die.
So how can you facilitate this lifestyle, deliver comfortable retirement income and ensure they don’t run out of money? How do you deliver happiness for your clients for the rest of their lives?
These are all massive questions that no doubt you have considered in depth. You’re financial planners, you do this for a living. Far be it from my remit to give you the solutions with a nice tidy formula or a sexy robo-planning tool.
Yet how you communicate with your clients, how you navigate the minefield of their emotions and the potential for short-term thinking is our remit. We discuss it with our clients all of the time.
Indeed, your role of guide in providing lifetime happiness for your clients is a great responsibility and requires huge emotional intelligence.
To some extent, you have to take the best bits being human while emulating a robot-like logic. You have to be emotional and rational; the limbic centre and the neo-cortex of the brain. You need both to successfully guide your client through life and deliver on their aspirations for themselves and their family.
Let’s explore this in a little more detail.
Managing money stress
People get rather emotional when it comes to money - be it stressed, excited or scared, or even angry, jealous and distrusting.
Money determines so much about our quality of life. If we don’t manage it well, we risk a much worse life for us and our loved ones. It means a lot, and because of that the more we tend to stress about it.
Before we discount the importance of emotions entirely, it's worth understanding that people bond emotionally before they do intellectually.
Clearly, you want to deliver a human service to your clients, creating genuine, intimate and trusting relationships. (For more on this, take a look at our article on the trust equation here.) However, it’s important that you don’t allow client emotions to govern behaviour where money is concerned.
In moments of extreme stress, such as dealing with money, humans can experience a kind of 'emotional hijacking'. In other words, the fight, freeze or flight response kicks in.
A part of the brain called the amygdala triggers this emotional response before the cortical centres have fully understood what’s happening. Your heart rate and blood pressure increase. Your muscles tense up in preparation for quick action to fight, flee the scene or freeze entirely.
All this comes into play in response to a perceived threat. It was all very useful back in the day, but it's somewhat less helpful when it comes to financial planning. It’s short-termism at its most extreme.
Ensuring income for retirement demands a long-term, rational, objective approach. Which is where you come in.
Client emotions are what make them human. Ultimately, the reason to invest money is unequivocally human - to take care of oneself and your loved ones, now and in the future.
When these human motivations seem under threat by short-term market fluctuations, it’s human nature to react. Perhaps clients will want to abandon the long-term strategy and pull their money out of the investments in order to provide short-term peace of mind.
Conversely, an upturn in fortunes might provoke a desire to throw more money into certain investments that are doing well.
Their job is to be human, that is, to pursue their hopes and dreams wholeheartedly, and to act and react to perceived threats.
Your job is to provide the objective, rational analysis. It is to use all the facts and tools available to calculate the best possible long-term strategy for your clients, free from emotion.
This isn’t to dismiss their emotions and very human needs. After all, without them this money and all their investments and pensions strategies lack any meaning whatsoever.
However, you provide the objective counsel to clients that understandably struggle to remain objective. They’re not objective. They’re firmly camped in ‘team them.’
I mentioned earlier that being a planner requires a huge amount of emotional intelligence. It is extremely nuanced and requires exceptional communication skills.
I tend to define emotional intelligence as a great capacity to understand human emotion, both in yourself and in others. This understanding gives you the power to harness and guide these emotions, rather than them governing you and your behaviour. An emotional reaction is quicker, but far less accurate, which is unhelpful for financial planning.
But equally, you can't just give it to your clients straight like the answer to a maths equation. Your clients want to know you care and understand them. If you don’t understand them, then you won’t be able to provide the right, nuanced solutions for them and their future.
Also, if they don’t feel good about you, or that they can trust you, they may not be open to your rational, long-term planning advice. Perhaps they’ll go with someone that 'gets them' more. Their relationship with you is critical, and for life.
It’s important to enter into it with this mindset. You need to understand your client and their emotions, but you can’t be governed by them. That’s their job.
So, the fact that healthy life expectancy continues to rise is a huge business opportunity for advisers. You’ll have more clients that are actively engaged with you for a longer period. Great.
Yet the skill demanded of you to successfully deliver happiness to each of your clients for this whole period is immense.
Advisers must be always entirely practical and solution-orientated. You have to be caring and empathetic, without being emotional.
You’re both in and out of their camp. Partisan and neutral.
Pinocchio’s Jiminy Cricket, if you will.
It’s tough. And it's hard not to get emotionally involved. But if you get this balance between the emotional and the rational right, your clients will thank you for it in the long term.