How financial therapy could benefit your clients—and your practice
As wealth management becomes increasingly holistic, more advisors are either enlisting the help of a certified financial therapist or enhancing their own communication and empathetic skills—or both.
June 9, 2021 | Katie Kuehner-Hebert
What do you do when clients agree to a financial plan and timetable that you’ve crafted together, only to fail to follow through on things they alone can implement?
Maybe they tell you that they can’t find time to fill out the paperwork for a new Roth IRA. And maybe that behavior is becoming habitual on other steps you have agreed on as part of their financial plan.
Maybe their financial goals are stymied because they’ve accumulated massive credit card debt, with their credit limits continuously maxed out.
Maybe they’re able to save a good bit over several years, only to then empty their retirement account with significant penalties and then start all over again. Or worse—maybe they’re hiding all of this from their spouse or partner.
Perhaps you realize that there are likely some underlying emotional issues getting in the way of your clients’ commitment to achieving their financial dreams—or perhaps even living securely.
There’s help for that. More advisors are enlisting the services of a financial therapist for their clients or are incorporating some financial therapy tools into their practices.
Financial therapy can help people change the way they think and feel about money—and, most importantly, change negative behaviors by digging deeper into their belief systems.
Alex Melkumian, founder of Financial Psychology Center in Los Angeles told CNET in 2020, “If you make the same financial mistakes and can’t seem to figure out why, if money is a major source of conflict with your significant other, [or] if your financial situation is creating turmoil in your life and causing extreme emotions, financial therapy may help you.”
Advisors can employ the power of financial therapy using a variety of models. They can refer clients to a certified financial therapist, like they would refer a tax accountant or attorney. Advisors can hire a certified financial therapist to be a staff member, working with the clients of advisors within their practice. Or, advisors can use enhanced communication and empathic skills themselves with their clients to improve their clients’ financial well-being.
Indeed, wealth management is increasingly becoming more holistic, according to McKinsey’s report, “On the cusp of change: North American wealth management in 2030.” McKinsey writes, “In the next ten years, advisers will gradually shed their role as investment managers and become more like integrated life/wealth coaches who advise clients on investments, banking, healthcare, protection, taxes, estate and financial wellness needs more broadly. As the industry undergoes this shift, wealth managers will need to fundamentally rethink their recruiting strategies and training programs.”
Enhanced communication and empathy skills are perhaps even more critical when practicing goals-based wealth management, writes Richard Lehman, an adjunct professor of behavioral finance at UC Berkeley Extension and Golden Gate University. “While trying to deal with a behavioral issue, such as an overreliance on market benchmarks for performance monitoring, goals-based investing walks into a veritable thicket of other behavioral issues that advisors may not be aware of,” Lehman wrote in a Proactive Advisor Magazine article. “More importantly, some of these issues are challenging and could become showstoppers for some clients, causing the goals-based approach to potentially backfire.”
The advisor-client relationship could also potentially suffer, and clients may choose to leave altogether, he adds. To maximize chances for success, advisors should consider enlisting the help of an outside professional, as well as boosting their own communication and empathetic skills.
Financial advisors can refer clients to certified financial therapists, much like they refer them to CPAs or estate attorneys, says Meghaan R. Lurtz, a senior research associate at Kitces.com, and a past president of the Financial Therapy Association. This organization provides a forum for financial therapy professionals to share research and practice methods and models.
“It’s not recommended that an advisor be the financial therapist for their own clients. You can’t be an unbiased party and see them clinically at the same time you are managing their money,” Lurtz says. “While advisors can be empathic and utilize basic communication skills, they should refer clients to financial therapists if they have chronic problems with money.”
For example, a client could have a gambling disorder or another disordered money behavior that is stopping the individual from being able to live functionally and accomplish financial goals, she says. A financial advisor may be the first person to realize a client may have a gambling disorder and massive debt, and is lying to everyone about it. “The advisor can be there to support them, but that person truly needs mental health services,” Lurtz says.
Several research-based techniques used in financial therapy include visualization, solution-focused therapy, financial genograms (essentially a family tree related to money behaviors), and exercises to help unearth subconscious thoughts that may be sabotaging financial goals.
Financial therapists often encourage clients to visualize what their financial goals mean to them, such as envisioning a mortgage-free home in their retirement years, children graduating from college, or seeing themselves on foreign trips, she says. Then financial therapists typically work backward from the big goal and have clients visualize the steps they can take along the way to get there.
“Even if their big goal shifts over time, having clients visualize on a periodic basis can help them realize there is more than one way to actualize their dreams,” Lurtz says.
Solution-focused therapy can help clients figure out what skills they may already possess to overcome their financial challenges, she says. For example, if a client is having trouble saving money, it’s better if the financial therapist gets the client to think of solutions. When clients themselves generate ideas of how to save more, they tend to be more committed to following through. They may also realize there are emotional issues that are getting in the way that they may need to resolve.
Having clients develop their own financial genograms can provide a means to unearth clients’ financial family history and how the relationships around them may be influencing their money behaviors, Lurtz says.
“For example, when I was first married, my husband suggested that we combine our bank accounts. I turned to him and angrily asked if he wanted to control me and then declared he would never have access to my money,” she says. “After exploring my financial genogram, I realized that my relationship with money was significantly shaped by my great grandmother, who had to hide money in the house from her habitually drunk husband so he wouldn’t spend all of it. That way she could keep food on the table for the kids. When I realized how this was impacting me, I was able to work through that much easier.”
Lurtz was able to come to this realization by learning more about her family’s financial history. The women in each generation were told to take care of themselves financially. While ostensibly that’s good advice, in Lurtz’s family it came as a warning with an “ominous feel to it.”
“No one, until I investigated my family history, ever explained where that message came from or why. They would just say it,” she says. “Knowing its origin helps it to make more sense. I don’t have to be fearful of men and money and potential control issues for reasons that have never been explained to me, just felt. I can, instead, know the issues, know the origin, and become financially independent without the fear. But it takes time and investigation to learn those histories and then think through what they mean in today’s world, in my current relationship, and so on.”
Financial therapists can also employ exercises such as “What Do You Believe?,” which help clients unearth and explore money scripts that may cause them to get stuck in a financial rut, as their limiting subconscious beliefs might be sabotaging their ability to make good financial decisions, Lurtz says.
Rick Kahler, president of Kahler Financial Group in Rapid City, South Dakota, has two financial therapists on staff: himself and a licensed mental health therapist.
Kahler has deep knowledge of the financial-services industry and a host of certifications. In addition to being a certified financial therapist (CFT-1), Kahler has a master’s degree in financial planning and is also a Certified Financial Planner (CFP), a Certified Financial Transitionist (CeFT), and a Certified Commercial Investment Member (CCIM). He is also a founding board member and past president of the Financial Therapy Association.
In 2003, he teamed up with financial psychologist Ted Klontz to help rescue country star Wynonna Judd from the brink of bankruptcy, described in Judd’s book, “Coming Home to Myself.” Kahler has co-authored books with both Ted Klontz and psychologist and financial planner Brad Klontz, including “Facilitating Financial Health, 2nd Edition,” now used as a university text.
While Kahler and the other financial therapist on staff “wear two hats” as CFPs and therapists, they don’t act as the financial therapists for their own financial-planning clients. The two work with clients of the other planners in his firm.
Those planners don’t practice financial therapy, but the firm requires that they take at least a one-year or two-year certification class or graduate class on communication skills or some type of financial therapy skills. There are certification programs and coaching programs that teach such skills, including programs at Golden Gate University and Kansas State University.
“Financial planning is becoming a commodity, so if planners want to be successful, they need to have exquisite listening skills,” Kahler says.
Financial therapy can help clients address many issues, he says. For example, it can help minimize risky behaviors and volatility in their portfolios, help overcome FOMO (fear of missing out), or reduce urgency around investment decisions.
“Let’s take a sense of urgency,” Kahler says. “In financial therapy sessions, we would explore this urgency—what are the beliefs, feelings, stories, or thoughts behind the urgency, say, of acting now on an investment tip or putting so much money into one stock?”
Financial therapists must seek to understand a client’s underlying belief system before they can help them, and the most important thing is to listen—“and not shame.”
“If you want permanent behavioral change, you need to listen. There’s usually a good intention behind the client’s maladaptive financial behavior, and so it’s important to really understand that good intention before you and the client move on,” he says.
As a financial therapist, Kahler typically develops both mental health and financial action plans. These include daily check-ins, daily meditations for emotional well-being, and traditional action plans around financial goals for financial well-being.
“It can be as simple as setting up a Roth IRA, or making a call to their 401(k) plan administrator to diversify their portfolio, or even just reviewing an investment video on a website,” he says. “Developing and following through on action plans within financial therapy sessions typically go slower than action plans developed in financial-planning meetings.”
Kahler routinely asks a client’s permission to share information with their planner, and if they are willing, he obtains written consent. Then the planner and Kahler can collaborate on developing an appropriate action plan, and also share insights on the client’s progress. Sometimes they have joint sessions with the client.
Developing action plans about a client’s financial or emotional well-being can start in a conversation with their planner or traditional therapist, he says.
“If the client is willing to go to a financial therapist, they are generally willing to talk about their financial and emotional struggles—such as actually starting a retirement plan or exploring emotional blocks,” Kahler says. “So, in that case, a financial therapist may suggest a simple financial action plan. Even if the client doesn’t give the financial therapist permission to collaborate with their planner, clients are usually forthcoming whether or not they have actually followed through.”
However, if the client permits the therapist to talk to their planner, the process of monitoring follow-through on financial action plans is even easier, he says. In solution-focused financial therapy, the therapist gives the client space to come up with a healthy solution themselves, such as paying down maxed-out credit cards, even if it’s in steps, or putting money in an IRA, even a little money to start.
“Internal family systems informed financial therapy is similar to solution-focused therapy, but the therapist drops any financial agenda and helps the client explore, understand the origin of, and appreciate the good intentions around resistances, money scripts, polarizations, or extreme financial behaviors,” Kahler says. “Collaborating with the client’s planner can help a therapist better determine if the goals are being met, but again, it’s not critical to collaborate.”
Nathan Astle, founder of Relational Money LLC, trains advisors on basic financial therapy skills.
Astle, whose background is in therapy, started his live online program for planners who want financial therapy training but don’t have the time or inclination to invest in graduate-level financial therapy certificate programs. Instead, he offers a four-week education program in which planners attend once a week for two hours, for a total of eight hours.
Relational Money covers a broad range of financial therapeutic skills, including active listening, empathetic validation, and “asking good questions in an empathetic tone.” Advisors learn how to develop financial genograms and understand basic mediation skills with financial conflict. Participants also discuss how trauma can impact financial planning.
“Trauma affects a huge number of people,” Astle says. “It affects our brains—how we make decisions around money. In my program, I teach planners how to recognize trauma symptoms and how to address those symptoms positively and productively. We also go over theoretical solution-focused questions.”
Going through the Relational Money program does not make a financial advisor a licensed therapist, says Astle, who is also a board member of the Financial Therapy Association.
“There’s definitely a big boundary between those roles, as therapists are trained differently, are regulated at the state level, and are held to different standards of ethics than financial advisors,” he says. “However, advisors can learn therapeutic skills that are helpful when engaging with their clients.”
Having empathic skills can help advisors recognize when a client may be struggling—they can help that client on a basic level, but then they can refer the client to a certified financial therapist if more help is needed, Astle says.
“Research has shown that clients who feel like their advisors are actually looking out for them are more likely to stay with the advisor,” he says.
One recent participant of Astle’s Relational Money program is Garrick G. Batley (MSFP, CFP) of IPI Wealth Management in Quincy, Illinois.
Batley was introduced to the concept of financial therapy while attending graduate school at Kansas State University. At that time, he had worked for a financial-planning firm for several years and recognized that “the biggest hurdle for most people to get over was not solved with a calculator or planning software.”
“The obstacle that many people face in my experience is understanding what they believe about money and how that molds their expectations for the future,” he says. “As a financial planner, we are not required to complete supervised work hours like a licensed or certified counselor, so there are not a lot of systems or resources in place to model the implementation or enhancement of this skill set.”
Through the Relational Money course, Batley learned additional insights into how people make decisions and some methods to lead them toward a healthier relationship with money. Additionally, he was given an opportunity to observe those methods being used and then practice them with other people in the class. The process “gave me the confidence that I needed to begin implementing it into my practice.”
Batley has also developed financial therapy skills by being an active member of the Financial Therapy Association. The association offers weekly discussion groups, an educational webinar each month, and an annual conference “that is packed with valuable content.”
“The primary focus of our firm is financial planning and wealth management, and my intent is to utilize the education and skill sets that I’ve learned to connect with our clients in a more holistic and authentic way,” he says. “It gives me insights into why a client makes decisions or avoids taking action so that I can ask better questions in an effort to lead them in a direction that gives them fulfillment.”
When Batley is able to ask questions that help clients get to the core of what they value, it’s increased the level of trust that they have in the firm and gives them more confidence in their future.
“Financial therapy skills enhance your ability to connect and communicate with your clients,” he says. “The trust and confidence that this gives your clients cannot be achieved through marketing or performance. This skill set will help your practice grow and be more effective.”
Daniel Ruben (M.D., MPH, MBA), founder of Life Strategies Advisers Inc. in Westlake Village, California, previously was a successful practicing physician with active internal medicine and hospital practices. The holistic approach he took to improving his patients’ well-being helped to shape the holistic approach he now takes in his financial advisory practice—focusing on their financial well-being.
“As a physician, I often dealt with the consequences of denial, procrastination, and expedient choices that were not always wise for one’s health and well-being,” Ruben says. “A holistic approach led to the best results. It is the same thing with one’s wealth. I am committed to working with clients in this way and see my role as being a client advocate in all ways that I can—helping them successfully navigate what we call ‘critical life events.’”
The most challenging part of the practice is dealing with clients’ emotions, but it’s also the most satisfying part, he says. When approaching clients, Ruben doesn’t treat his services as a “one-time transaction.” It’s a process, and he tries to be in their shoes going through the process, hoping to get to their goals “with relative peace.”
“Everybody has emotional reactions to money, to the situations that come up in life that ultimately impact their financial well-being,” Ruben says. “People can have differing emotional reactions, depending on their psychological makeup. Ultimately, we have no idea what can happen the next day, the next month, the next year. So we make a plan together on what we really can control.”
Ruben has to have that buy-in from the client. It can be “an emotional roller coaster” for them—when things go up and down, then up and down again—and as such, Ruben has to build the expectation that while the client can’t control everything, they can anticipate things and have in place appropriate risk-management planning.
Ruben’s job is to then hold them to their plan, so they don’t make emotional decisions based on things that are happening that they can’t control.
For example, in February and March of 2020, when the market fell significantly because of the pandemic shutdown, some of Ruben’s clients “were distraught, and a couple of clients just wanted out.”
“I told them that I understood how they felt—and that I felt the same way they did,” he says. “That is a really important part of being empathic—letting clients know when you feel the same way as they do.”
But then Ruben told them that it’s really important to not make investment decisions based on how they may feel at the moment, or they could actually be “shooting themselves in the foot” in the long run.
“I let them know that it is OK to have those feelings, but just don’t act on them,” he says. “Rather, let their investment and risk-management plan work the way it was designed to.”
If money is designated for more short-term objectives, then advisors must work to protect that, Ruben says. Under 10 years, and especially under five years, advisors need to constantly manage risk. A client’s investment plan needs to be structured to manage and minimize to the degree possible the risk of sizable drawdowns.
“That’s where we will look at active money management and most likely will use the services of a money-management firm that has strategies designed to manage risk while seeking competitive returns,” he says.
As wealth-management practices become increasingly holistic, more advisors are either enlisting the help of a certified financial therapist or enhancing their own communication and empathetic skills—or both. Helping clients overcome whatever obstacles may come their way—including within themselves—can go a long way toward helping them achieve their financial dreams.