Before Cristina Livadary co-founded her advisory firm in 2018, she spent ten years on the fund distribution side as a wholesaler. She met many advisors and was, at times, struck by how little those advisors knew about, or empathized with, their clients’ broader lives.
Not simply their spouses and children, or their occupations, but what kind of people they were; what really drove them to make the decisions they did around their financial plans.
The issue hit home when a mentor in asset management died suddenly of a heart attack, and his wife said she was so enveloped by grief that she had no idea how to handle their finances.
“That’s where life planning and being emotionally connected with someone’s money really shone bright,” Livadary said. “This is where I needed to spend my time.” It became a goal of hers to understand what money really means to clients, and why.
That mission led her to George Kinder and the Kinder Institute of Life Planning. Kinder, a trailblazer in the life planning movement, created and institutionalized an approach to financial advice that focuses on “the human side” of planning. It is meant to put the client at the “center of the conversation” to “meet unique goals” and “unlock the greatest meaning in their lives.”
From the institute, she earned a Registered Life Planner designation, and with a partner launched Mana Financial Life Design in 2018. Today the firm has about 105 clients, all of whom have a life plan.
Advisors trained in the methodology ask questions designed to let the clients direct the conversation, and then listen to them with “unconditional positive regard.”
“This is juxtaposed with my previous experience,” she said, where a prospect would come into an advisor's office looking for help with a retirement or college savings plan, and the conversation immediately went toward investments and portfolios.
It may sound, to some, a bit touchy feely for financial services. But in recent years, the idea of building a financial advisory firm around tenets taken from psychologists and therapists has become mainstream.
Many similar designations, groups and disciplines have arisen that get at a similar idea—treating the client as a whole human first, bringing their emotions, feelings, and behaviors into the conversations. Some call it “financial therapy,” some “financial psychology,” others “life planning” or “financial transitions.”
To be sure, the field is still a scattershot of approaches championed by individuals and groups with different backgrounds and priorities, and a sometimes confusing proliferation of designations.
Today, there are 600 Registered Life Planners from The Kinder Institute.
The Financial Therapy Association, a membership organization for professionals dedicated to the integration of cognitive, emotional, behavioral, relational and financial aspects of well-being, now has 356 members and has issued 63 Certified Financial Therapists (CFT-I) designations.
There are roughly 200 Certified Financial Transitionists (CeFT) practicing today. The designation is administered by the Financial Transitionist Institute, a division of the Sudden Money Institute.
And there are about 125 members of the Nazrudin Project, a leaderless, self-organizing think tank of financial planners, therapists, authors, educators and coaches. Nazrudin was created in 1995 by Dick Wagner and George Kinder to explore the deeper emotional aspects of financial planning; many of the different life planning approaches today can trace their source back to the earliest days of the Nazrudin Project.
A significant turning point for this community came in 2021, when the CFP Board of Standards added the “Psychology of Financial Planning” to the list of concepts that prospective CFPs would need to know. The topic was integrated into the CFP exam in March 2022.
For a lot of people, that legitimized the approach, said Emily Koochel, senior financial planning education consultant at eMoney and contributor to the CFP Board’s six-part book on psychology of financial planning. “It really elevated everybody who has been doing that work and gave them a really firm foundation to stand on.”
Now, the movement is getting its own “big-tent” event. In March, Advisor2X, an advisor-focused events company founded by financial advisor Ross Marino, will host the first SHIFT conference, a gathering of industry practitioners focused on “Human-First Financial Guidance.” No one discipline is favored, said Marino, a CeFT himself. “Everyone is welcome.”
A Rich History
While the idea of the financial advisor as therapist, psychologist, life planner or transitionist is becoming more mainstream, it grows out of a long history of disparate financial planners and therapists breaking new ground in their respective disciplines.
“It is nascent in the solutions, but the problems are ancient,” said Saundra Davis, lecturer and director of financial planning programs at Golden Gate University, and founding member of the FTA.
Kinder’s book The Seven Stages of Money Maturity, published in 2000, is based on ancient Buddhist teachings. Internal Family Systems (IFS), an approach to psychotherapy that says individuals cannot be fully understood in isolation from the family, was developed in the 1980s, yet it has roots in the African philosophy of “ubuntu,” which means “I am because we are,” Davis said.
“Basically, what's happening is people are turning to our lineages and human practices to make sense of why we can be so wealthy and yet so deeply in pain,” Davis said.
Kinder, 74, first became curious about the concept because a significant portion of clients of his tax-planning focused business were themselves therapists. He wanted to really know what his clients did to figure out the best approach to their tax plans. He went to their graduate workshops and courses during the summer and on weekends.
That experience prompted him to write the book, which is now a cult favorite among many younger advisors.
Later, Kinder started the Nazrudin Project with like-minded advisors and therapists, and was active in it for about 13 years. He shifted away from the group, he said, when it became clear to him that doing the deep-dive around psychology wasn’t always necessary for advisors to understand the unique drivers of their clients’ behavior around money.
“It wasn't so much in the analysis of childhood experiences and trying to break down what the neurosis was, as it was in identifying the goals and finding a way to move quickly and with great support,” Kinder said. “It was more about listening and support.”
He launched the Kinder Institute in 2007, and his EVOKE process was born. An acronym for Exploration, Vision, Obstacles, Knowledge and Execution, it’s meant to elicit engagement, excitement and personal goal setting with clients. Hundreds of thousands of clients have gone through the process, he estimates.
Susan Bradley was also a founding member of Nazrudin. She wrote Sudden Money: Managing a Financial Windfall, which is the basis for her Sudden Money Institute, founded in 2000. She says she considers herself more of a scout than a pioneer.
Her entrée into financial psychology came about because she had a lot of financial planning clients going through life changes, such as divorce, widowhood and retirement. She wanted to learn more about how to manage such challenges from the human side.
“I was thinking about how to transform a life event into a healthy money wellbeing kind of event,” Bradley said. She wrote the book as a kind of practical model for how to do so.
At the time, a lot of industry focus was on capturing “money in motion,” or bringing liquid assets into a firm and an under an advisor’s management.
“Chasing money in motion was very embedded in the profession,” she said. “And I have learned that if you want money in motion, deal with lives in motion. Deal with that well and the money will come, but it's lives first.”
She founded the Sudden Money Institute as the think tank behind her methods. The group launched the Financial Transitionist Institute as a training program for advisors and now issues the Certified Financial Transitionist designation.
Book: George Kinder; The Seven Stages of Money Maturity: Understanding the Spirit and Value of Money in Your Life
Book: Susan Bradley; Sudden Money: Managing a Financial Windfall
Podcast: The Human Side of Money With Brendan Frazier
Conference: The 2023 SHIFT conference
The Certified Financial Planner Board of Standards: The Psychology of Financial Planning
Father and son Drs. Ted and Brad Klontz have also been leaders in the financial psychology field, particularly with their 2011 academic research study on “Money Beliefs and Financial Behaviors.” The study identified four main types of “money scripts,” or fundamental beliefs, that influence one’s decisions around money.
The two have academic backgrounds and co-founded the Financial Psychology Institute with the mission to “increase the understanding of how psychological factors impact financial behaviors, establish evidenced-based practices for improving clients’ financial health, and train financial and mental health professionals to work more effectively with clients.” The organization administers the Certified Financial Behavior Specialist (FBS) designation.
The origins of the Financial Therapy Association go back to 2008, when a group of like-minded professionals met in Garden Grove, Calif., to determine whether a bridge could be built between financial planners and clinically trained therapists. At the time, there was a patchwork of practice techniques with only a few practitioners using any particular method.
“Until the FTA was established, there was no systematic and organized association for promoting and disseminating information about practice techniques,” an FTA document reads.
Sonya Lutter, a licensed marriage and family therapist, became first president of the FTA with its launch in 2010. (Last September, she launched ENLITE, to provide one-on-one training and consulting for financial planners on the role of mental health in the planning process.)
“The reality is, psychology—the study of the mind and behavior—has always been a part of financial planning. Any good, comprehensive financial planner would have a hard time arguing that the mind, behavioral biases, our relationships with our significant others, with their children, with their parents, with our co-workers, with society, don’t influence financial planning,” Lutter said. “Now people are paying more attention because they’re seeing, if they don’t pay attention, clients are doing not ideal things, or they’re leaving their financial planner.”
The Rise of FinPsych
One of the reasons financial psychology and therapy are catching on is because many advisors saw clients abandon their carefully constructed financial plans, Davis says.
“We cannot change anyone else's behavior,” she says. “You can create a plan, but if the client doesn't do the plan, what are you going to do as the professional?”
Many financial planners feel like if they push accountability, the client may fire them, she said. And people who are wealthy may not feel like they are paying to be held accountable.
“But what if the circumstances change? Sure, I can manage their assets, I can advise them, I can connect them with other referrals, but if their behavior is not in sync with the plan, it doesn't matter what the Monte Carlo simulation says. We're not going to
Brendan Frazier, founder of Wired Planning, had a couple in their 70s come in looking to retire. He came up with a plan for them that had an estimated 95% probability of success.
“I was sitting there, and I could tell something was wrong,” Frazier recalls. “I thought this would be joy, excitement, relief.”
But one of the key components of the plan was keeping some money invested in equity markets, and the client “could not stomach the idea of losing it.” Even with a 95% chance of success, the couple ended up not retiring.
“There's obviously things going on there underneath the surface, psychologically and emotionally, that were driving that decision and keeping him and his wife from living the life that they wanted to live,” he said.
“I know how to make a compelling logical case, but I didn’t have the human emotional and psychological skills and tools that I needed in that moment … to help give him a better chance of making what was the best decision for him and his wife. And I just kind of felt exposed in a way,” he said.
After that, Frazier took it upon himself to learn about the psychology behind financial planning. He never had any formal training on the topic but read about it and researched how to apply it to his practice. He launched “The Human Side of Money” podcast to talk to other practitioners and experts and create a resource for other advisors.
“We don't get taught how to deal in behavior change and changing people's behavior, getting people to follow through,” he said. “It's a completely different skill set. And what we also know is that giving advice, telling somebody what to do, creates this barrier resistance to doing it.”
A July 2022 eMoney study found that 71% of advisors said they are somewhat familiar with financial psychology; a little more than a quarter say they’re very familiar with it. And despite a belief in the benefits (see chart) only 33% of advisors indicated that they have access to quality training and resources on financial psychology.
“There is a stronger notion that this is important, especially for those that are seeing themselves or servicing their clients as holistic financial planners,” eMoney’s Koochel said. For those holding themselves out as holistic planners, “this is absolutely going to be a part of what you're adding to your education and what you are infusing into your firm and into the advisors that are working with your clients.”
Bradley says she’s seeing indications that this is no longer a side gig for financial planners. Some learning to write separate contracts for services that have nothing to do with managing the money. It has gotten to the point where some folks are charging north of $50,000 a year for transition advice, she said.
“We're moving towards this being the centerpiece, and they do whatever else they do around it and charging a fee that's profitable for the firm,” she said. “That is high value stuff, but you have to be able to explain it, what it is, why it has value, what it would do for a client, and you have to know how to charge for it so that you actually make a profit,” she added. “Don't lose your shirt. It's not lost leader. And we're just at the beginning of that.”