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Financial Planning > Behavioral Finance

6 Stages of Behavioral Change: Pt. 1

By Michael E. Kitces

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In financial planning, it’s not just about having expert knowledge and wisdom to dispense to clients; after all, if clients don’t ultimately implement the recommendations and change their behaviors, then their situations will not improve. In fact, many financial planners experience frustration when clients won’t act, and view the failure of clients to implement recommendations as a sign that the people must be “bad” clients. The implication is that it may be more productive for planners to seek out “good” clients instead—those who act promptly and see the value in the planner and his/her advice.

Yet research from Dr. James Prochaska and his colleagues in the field of psychology suggests that in truth, the process of changing behavior—whether with respect to eating healthier and exercising more, ending a smoking habit, or making better financial decisions—is far more nuanced. Not only does it often take more than just one dose of good advice to bring about significant and lasting behavior change, but just because someone has a meeting with a professional does not necessarily mean that person is really even ready for change in the first place.

Accordingly, an ideal process for working with clients may entail first understanding what stage of change the client is in, and then adapting the advice process to help the client move forward, from wherever he/she is at the time.

The most important implication, though, is that it may no longer be appropriate to simply view clients who don’t implement as “bad” clients. Instead, a greater responsibility may rest upon the professional practitioner to help clients, regardless of where they happen to be in the process of change, to move forward. In turn, this means that it may be time for financial planning training to be improved, to develop the understanding and skill sets necessary so that planners can not only inform clients of what needs to be done to improve their financial situation, but also help motivate them to actually do it!

The inspiration for today’s blog post is a recent conversation I had with another financial planner, who expressed frustration that his clients often don’t implement his recommendations. “Too many of my clients pay me for my advice, but never get around to implementing it,” he said. “Where can I find good clients who will actually follow through on their recommendations?”

What Is A ‘Good’ Client, Anyway?

One of the suppositions of my planning friend’s statement—commonly expressed in the financial planning world—is that clients who are unwilling to act on the recommendations they’re presented are “bad” clients.

Of course, some clients don’t act upon the suggestions made by financial “advisors” who are really just trying to sell a product. But certainly clients should implement the advice of a fiduciary financial planner, especially if the clients paid a standalone hourly or planning fee for the recommendations and it’s clear they are not conflicted and in the client’s best interests. Right?

The caveat of this viewpoint is that it implicitly assumes that the client was willing, ready and able to implement the recommendation and change his/her behaviors, and that the client simply failed to follow through and do so—which also implies that a failure to act “must” be the failure/fault of the client. Yet the research on behavior change indicates that in reality, all people go through several stages in the process of changing their behavior, and not all clients necessarily show up in the financial planner’s office at the ready-for-action stage we typically assume.

Prochaska’s Stages of Change

The leading researcher on understanding how people change their behavior is Dr. James Prochaska, who with his colleagues has published “Changing for Good”, arguably the definitive book on the subject with a comprehensive view of decades of their studies.

What they found in their research is that while we classically think of behavior of something of immediate action—we decide we’re going to make a change, and act to do so—in reality the process is far more nuanced. In fact, his research found that change entails a six-stage process: Precontemplation: When we’re not even cognizant we need to change (not ready yet)

Contemplation: When we begin to actively think about change (getting ready)

Preparation: When we take the steps to prepare for making a change (ready)

Action: The actual process of making the change (time to act!)

Maintenance: When we take on proactive efforts to maintain the change (try to avoid relapse!)

Termination: The point at which we no longer need to actively maintain a change; the new behavior has become “permanent”

While the context of Prochaska’s stages of change was how people succeed in changing behaviors like smoking or poor exercise and dietary habits, the reality is that the stages of change map remarkably well onto many changes that financial planning clients consider. For instance, suggesting that a client needs to spend less now and save more for retirement, or redirect discretionary income from consumption to purchasing critical insurance, takes the client through a similar process.

For instance, the client who needs to reduce spending may first be unaware of needing to change (precontemplation), then become aware of the importance of making a spending change (contemplation), then consider how to change spending (preparation), then implement the spending change (action), then sustain the spending change (maintenance), and only after a long period of time finally assimilate the new spending level as their new lifestyle (termination).

What’s most notable about Prochaska’s research, though, is that it also helps to explain why many people don’t engage in change, even when they’ve been informed/told they need to. In fact, pushing for change when clients are still in the precontemplation stage will tend to invoke denial of the need to change; instead, it’s more helpful to raise their awareness of the problem and the need. Conversely, if clients are in the preparation stage, they need assistance to formulate the decisions and trade-offs necessary to move on to action—continuing to raise their awareness about the need to change is actually no longer useful. Prochaska and his colleagues found that in the context of programs designed to end obesity or smoking problems, simply understanding the person’s stage of change was able to almost perfectly predict who would follow through on the program.

In the second part of our post, we’ll examine whose fault it really is, and whether or not it’s time for better training.

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Please check out the next part of this blog: 6 Stages of Behavioral Change: Pt. 2 on AdvisorOne.

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