Sex and money are, ironically, what both men and women psychologically struggle with most, research says. Can financial advisors help clients overcome money issues that impede their investing? Yes, by offering financial therapy to help turn destructive behaviors into logical investment decisions.
Indeed, FAs’ failure to address the reality that clients base 90% of financial decisions on their emotions will “probably be their undoing professionally.” So says wealth advisor Rick Kahler, a founding board member and past president of the Financial Therapy Association, in an interview with ThinkAdvisor.
Kahler, who helped rescue country star Wynonna Judd from the brink of bankruptcy in 2003, argues that FAs’ incorporating financial therapy into their practice is an effective way to boost and retain the human side of advisory amidst the fast-moving techno-revolution.
Moreover, without clients’ awareness of the way they self-sabotage their finances, investing goals may never be reached.
Fee-only Kahler, with $200 million in assets under management, has a high-net-worth clientele, and financial therapy is included in his fee. The Kahler Financial Group also offers this separately to individuals who do not meet the account minimum.
When family background regarding finances and ingrained money attitudes unconsciously cause clients to make financial blunders, it’s time to “lie down” on the financial therapist’s couch, as it were. A cost-effective way to offer this service, if possible, is to staff a financial planner who is also a licensed counselor — as does Kahler — versus outsourcing the therapy component.
Financial therapy blends planning and behavioral finance to examine a person’s relationship with money. The goal: to change behaviors to make better financial decisions.
It is a nascent discipline that’s growing slowly among advisors. Some have stepped into financial coaching or euphemistically use the term “coaching” for what is in actually therapy. Kahler is on the Financial Therapy Association task force that is developing a Certified Financial Therapist designation.
As financial advice becomes increasingly commoditized, advisors offering financial therapy as one of their services become increasingly relevant, Kahler, 62, contends. Based in Rapid City, South Dakota, half his clients are located outside the state. (Financial therapy can be conducted via Skype or a similar system.)
Kahler, a CFP, was the financial advisor in a high-impact intervention that saved singer Judd from dissipating what was left of all the wealth she had created up until then: She’d already blown $26 million in nine years and was about to deplete half the remaining $6 million.
So much for show biz. What about “ordinary folks” — clients who resist their advisors’ recommendations to, for instance, spend less to save more? Financial therapy is often the remedy.
Kahler, who teaches a graduate course in financial health at Golden Gate University, is a popular speaker at events held by organizations including the National Association of Personal Financial Advisors (NAPFA), the Financial Planning Association (FPA) and the American Group Psychotherapy Association (AGPA).
He has co-authored three books with psychologist-financial planner Brad Klontz, including “Facilitating Financial Health, 2nd Edition” (National Underwriter 2016), also co-written with Ted Klontz, Ph.D. — the therapist in the Judd intervention — and which is used as a university text.
ThinkAdvisor recently spoke by phone with Kahler, who discussed, among other issues, how to know when a client can benefit from financial therapy and why Judd, astonishingly, had no clue she was about to go bankrupt. His comments concerning her non-relationship with money prior to financial therapy reflect revelations in the foreword she wrote to Kahler’s book, “Conscious Finance: Uncover Your Hidden Money Beliefs and Transform the Role of Money in Your Life,” co-authored with Kathleen Fox (Foxcraft 2007).
Here are excerpts from our conversation with Kahler:
THINKADVISOR: What happens when a financial advisor dismisses the idea and need for clients to have financial therapy?
RICK KAHLER: They’re probably going to fire a third of their clients and call them nonperforming because they’re stuck and resistant. [But] 90% of money decisions are made emotionally. Most people have a huge underbelly of emotions and beliefs. When that’s known, why they act illogically makes sense. A planner ignores that to their own detriment.
Why would that be harmful?
In these times, when financial planning is going down the road of commoditization — for example, robo-advisors — what’s left? The human element. For a planner not to acknowledge the human emotional underbelly — and think clients operate from logic — is probably going to be their undoing professionally.
But most financial advisors just shrug off financial therapy.
The profession is discovering that the emotional element of money is a big deal, and that’s where the relevancy of a financial planner will lie in the future. It’s where the profession is heading.
What part will financial therapy play?
In five to 10 years, I think there will be a degree in financial therapy. It’s already offered as a minor at Kansas State, and there’s a Certified Financial Therapist designation under development.
So does an advisor need to start providing that service now?
While today you don’t need to offer financial therapy to be relevant, you’d better offer financial coaching. That looks at the future; therapy, or counseling, looks at the past.
Why would a client need financial therapy?
Most people do, and most can benefit from it. There are folks that are pretty functional around money, but they may have a blind spot or a sticking point. Others are just mired and stuck in a lot of pain and are really hurting financially. They can use a lot of financial therapy.
What’s a clue that a client is in need of financial therapy?
When they say, “I’ll get around to that” or “Sell me out of my stock portfolio now.” Advisors have no idea of the depth and breadth of what’s underneath those seemingly logical behaviors around money. Financial problems are a symptom of something deeper and are almost never about the money.
What could be the source?
All too often someone’s overspending is tied back to sexual, physical or verbal abuse they suffered as a child, or being heavily criticized as a child, or the death of their own child. It’s very similar to overeating: that problem isn’t about the food. It’s about the deeper emotional issues.
You and consultant and trainer Ted Klontz worked with Wynonna Judd when she was about to go bankrupt. She’d gone through $26 million in nine years. What were your roles in that intervention?
I was there to keep the financial issues clear. Ted, the therapist, was there to handle the emotional issues. It made a huge impact on her.
As Judd writes in “Coming Home to Myself” (New American Library 2005), she went from growing up poor on food stamps to rich international superstar. But she spent her money irresponsibly and was even draining a family trust.
Until she met us, she didn’t know there was anything like a relationship with money. When she was just a teenager, she achieved success, but she never even saw the money because her manager [handled it]. When she wanted something, she used a credit card; and somebody else paid the bill.
She didn’t keep tabs on her money?
She didn’t [even] know how much money she had. She just believed that as long as she kept working, money would continue to be there.
What do you mean by she didn’t know about having a relationship with money?
She didn’t want to mess with money. She thought money was evil. She thought if she had a relationship with money, she’d become greedy and evil. She didn’t want to have anything to do with it. She thought money would get in the way of her relationships with people. So what happened to her was that money was using her rather than her using money.
When you suggest financial therapy to a client, do they balk at the idea?
In the past, anytime you referred out to a therapist, it was viewed as a negative by the client. The public is a little more accepting and less threatened by the term, financial coaching. So we’re calling our [staff] financial therapist a financial coach [Sarah Swantner, CFP and Master’s degree in therapy candidate] and integrate that into our whole service. Some clients work with an outside therapist; but working with Sarah is more cost-effective for us.
What’s a key requirement for an outsourced therapist?
They need to have training to work on their own issues around money first. It’s critical that the professionals involved are familiar with the territory of the other.
How do you broach the need for financial therapy to a client?
When we see them struggling, we may suggest some additional meetings: “Would you be open to spending time with Sarah next week?”
Are you in the room for these sessions?
Since Sarah is both a CFP and a therapist, she can meet with them by herself when they hit an emotional issue around money. But when the therapist doesn’t have the financial background, I’m there too. That’s so the therapist can’t be stumped on a financial issue and the planner can’t be stumped on a relationship issue. Financial therapy doesn’t happen without both the financial component and the therapeutic component.
How do you know when a client is stuck and not making progress?
If someone says, “How can I retire on $4,000 a month?” and we say, “You need to be saving $2,000 a month,” but they’re saving $250, and we come up with a plan on how they can save $2,000 a month by cutting this and that — but when they come in for their next review, they haven’t started. They’ll just say, “We plan to.”
And do they do begin doing it?
No. Next quarter, they say the same thing. When this happens for about a year and nothing changes except the excuses, they’re stuck, and that’s a prime time for financial therapy.
What happens after a client has therapy? What good comes from it?
Financial therapy is very measureable where progress is being made. With conventional therapy, it’s hard to concretely measure progress; but with financial therapy, it’s pretty easy. For instance, one client had $5 million and wanted $150,000 a year income from it. No problem — until they said they wanted everything invested in CDs. So we did a little financial therapy around that.
Did it work?
Today they have a 60%/40% portfolio — and for 10 years now, it’s thrown off $150,000 a year. That’s progress.
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