'Ow!' — not 'wow' — drives client change

Is it gain or pain that motivates clients to apply their financial plans to everyday decisions?

Data and dashboards typically focus on gain: how clients’ assets grow, and how quickly, under advisors’ guidance. Financial literacy efforts inevitably pivot on logic and projections that press the virtues of investing early and often, in rigid mathematical terms.

But the real driver of financial behavior is pain, argues Heather Fortner, CEO of SignatureFD. “People typically don’t change until the pain of staying the same is greater than the pain of change — or the fear of staying the same,” she said.

As a child, her family’s culture was grounded in scarcity as the financial trauma of the Great Depression reverberated through subsequent generations. As Fortner earned a graduate degree in counseling and moved into financial services management, she gained insight into her own financial clutch points. Yes, becoming a financial advisor was a reasonable career risk. But she also felt compelled to cushion the career transition with enough savings to cover her family’s basic expenses for a year, just in case things didn’t go according to plan.

Fencing in her financial fears fueled her success because she gave herself permission to immerse herself in her career, Fortner said. And it infused her approach with a holistic perspective: To put their plans into action, people have to taste the immediate gratification of progress toward their financial goals and the life they envision. Now the financial philosophy that frames the firm pivots around one core question: “What has to happen to make those behaviors connected to the individual and the plan?”

Facts don’t persuade and data don’t prompt change. Instead, psychologists and advisors say, information leads to inspiration, inspiration to motivation, and motivation to action. Advisors who try to skip ahead from information to action set themselves up for frustrating interactions with clients and the public.

Daniel Crosby, chief behavioral officer at Orion Advisor Solutions, compares the effort of a barrage of facts masquerading as literacy to the utility of his long-faded proficiency in French. “I took French in high school and just went to Paris and was useless,” he said. “People forget 90% of what they learn within three days if it’s not reinforced, practiced and brought into their everyday lives.

"And that’s just recall. Layer onto that the knowing-doing gap,” Crosby said, citing the phenomenon that decouples knowledge from motivation. That’s the dynamic that explains, for instance, why people have a full understanding of the accumulating weight of credit card interest rates yet carry outstanding balances: Just because they know the right thing to do doesn’t mean they’ll do it.

The pivot point, said Crosby and other experts in behavioral finance, is salience: the motivational magic that's sparked when a piece of information has immediate relevance to the client’s situation or expectations.

“You notice jewelry ads when you get engaged,” Crosby said. “When people see photos of themselves, [aged to] retirement age, then they save more for retirement because saving is then personalized and has urgency.”

Financial literacy programs serve up plenty of data, but it’s up to individuals to convert what they know to action.

Northwestern Mutual’s 2022 Planning & Progress study found that Americans anticipate that they’ll need 20% more money now ($1.25 million) to retire than they figured they needed just two years ago. Meanwhile, 27% of Americans are counting on 401(k)s and the like, and 22% think their personal savings will buoy them through retirement. At the same time, Americans’ average retirement savings have dropped 11%.

The latest report about women’s retirement expectations from the TransAmerica Retirement Institute illustrates the difficulty of putting financial priorities into action even when the case feels imminent. Women cited as their top financial priorities paying off debt (58%), saving for retirement (50%) and building emergency savings (38%), but in the post-Covid economy, 26% of women are dipping into their savings accounts, while 20% accumulated credit card debt and 14% reduced or stopped saving for retirement.

The charts, graphs and projections so beloved by financial advisors remain just much numerical wallpaper until consumers or clients have already shifted their frame of reference and are poised to move on what they understand, said Sonya Lutter, director of a new financial health and wellness course of study at Texas Tech University and founder of a financial planning and mental health firm, Enlite. It’s not the planner’s powers of persuasion, or the weight of the data, that triggers client action, but the salience, or relevance of that data to the life they want now or can envision for themselves, in emotionally engaging ways, she said.

Most planners are great at analysis and logic, but that rarely translates cleanly to compelling client conversations, said Megan McCoy, assistant professor of personal financial planning at Kansas State University,

Instead of trying to power through clients’ conflicting feelings about the implacable results of financial decisions, acknowledge the “angel versus devil” dynamics and walk with them through the nuances of what it will feel like to live with the consequences, McCoy said.

“This is where you start intervening as a financial advisor,” said Lutter. “You start asking, ‘Why is that important to you? What would happen if you did change this part of your financial plan? What would happen if you didn’t change? Why not? And just being curious, what would happen if you did shift to this other job that pays less?' You’re asking questions that help the client understand where they a re and they can decide where they go.”

“Get guilt and shame out of the equation,” McCoy urged. “Too often, we give them the solution instead of helping them create their own solution and having power and control over it.”

Client resistance to financial fundamentals like sticking to a budget are less evidence of clients' priorities and more about their struggle to find the hook that makes their immediate or envisioned future lives better as a direct result of the financial discipline.

Emerging financial tools might make it easier for consumers to apply financial common sense to their daily habits. A Harris poll released in late February indicated that while 62% of Americans (and 69% of women) are worried about money, they also itch for financial management apps that let them translate that anxiety into positive action: 78% of poll respondents across all income levels said that they’d use an app that let them automatically funnel a bit of each paycheck into an emergency savings account.

Achieving and celebrating small wins is a powerful way to reverse Americans’ financial momentum, McCoy said.

She cites as an example the way she, as a college student, flouted the very financial principles she was learning when her grandmother occasionally sent her some cash. McCoy worked to pay her school bills and held to a strict spending plan. But the money from her grandmother always went for pizza — an item far off the spreadsheet. As a financial planning newbie, McCoy couldn’t understand why she rebelled against her own priorities. Then she realized that she had to add a line in her budget for celebrating small milestones ... and allot her grandmother’s gift as a way to incentivize her otherwise religious adherence to her plan.

“Don’t lead with the money, lead with what the money is for,” she said. “Switch the conversation to goals and passions. You have to create space for clients to find the magical ingredient that works for them.”

[More: The question most advisors aren’t asking clients about their financial future]