We’re handing our blog over to Catherine Morgan, Founder of The Money Panel and author of It’s Not About The Money this week, who was inspired by a poll we recently ran on LinkedIn asking whether financial advisers/planners should advise themselves or look to someone else.
Over to Catherine…
As financial planners, we pride ourselves on our ability to guide clients through complex financial landscapes, helping them make sound decisions for their future. But what about our own financial decisions?
This article was inspired following Yardstick’s recent LinkedIn poll (you know how much they love polls!) and this revealed a startling statistic: 88% of financial advisers and planners advise themselves rather than seeking external support.
At first glance, this might seem logical – after all, who better to manage a financial planner’s money than the expert themselves? However, this approach overlooks a crucial aspect of financial decision making: the human factor.
The human side of financial planning
Financial planning isn’t just about numbers, spreadsheets, and market trends. It’s equally about psychology, emotions, and behaviour. As planners, you may be well-versed in explaining to our clients how emotions can cloud judgement and how cognitive biases can lead to suboptimal financial decisions. Yet, we often forget that we’re just as human as our clients, subject to the same psychological quirks and biases that can derail even the best-laid financial plans.
The behavioural biases that blind us
I am immune to these biases surely? Let’s explore 3 biases:
1. Overconfidence Bias: As experts in our field, it’s easy to fall into the trap of overestimating our abilities. “Curse of knowledge” I call it. We might think, “I’ve helped hundreds of clients navigate complex financial situations; surely I can handle my own finances.” This overconfidence can lead to underestimating risks or overlooking crucial details in our personal financial planning.
I recently discovered this trap myself after realising that I had entirely missed one of my old pension schemes out of my own financial planning, promoted by a letter in the post of the company trying to track me down after my move to Jersey, Channel Islands. (If only all companies would try and hunt their clients down!).
2. Confirmation Bias: We favour seeking out information that confirms our existing beliefs and ignore contradictory evidence. For a financial planner, this might manifest as sticking to familiar investment strategies or financial products, even when new options might be more suitable for their personal situation.
As a healed over spender, I’ve always prided myself on being frugal and avoiding unnecessary expenses. For years, I justified my daily £5 coffee shop habit by telling myself, ‘It’s my only indulgence, and it helps me work more productively.’
I would read articles about the ‘latte factor’ (or the ‘tea factor’ in my case) and how small daily expenses can add up, but I’d quickly dismiss them, thinking, ‘That doesn’t apply to me – I’m good with money otherwise.’ I even calculated how my tea habit was a smaller percentage of my income compared to the average person, confirming my belief that it wasn’t a problem.
It wasn’t until I actually tracked all my expenses for a month that I realised my ‘small’ tea habit was costing me over £70 a month. I had been so focused on confirming my belief that I was financially savvy that I overlooked this clear contradiction to my own advice. This experience taught me that confirmation bias can creep into even the most mundane financial decisions.
3. Present Bias: We often prioritise immediate rewards over long-term benefits. This means that it is more difficult to self manage those dopamine hits.
Why can’t we just overcome these biases?
The tricky thing about behavioural biases is that they operate largely beneath our conscious awareness. It’s one thing to recognise these biases in others. It’s another thing entirely to spot them in ourselves. Our emotional involvement in our own finances can make it incredibly difficult to maintain the objectivity we so easily bring to our clients’ situations.
Still need convincing? When was the last time you made a financial decision that, in hindsight, was clearly influenced by emotion rather than logic? How did you justify that decision at the time?
This is where the value of an external perspective becomes clear. Just as therapists seek therapy and doctors consult other doctors for their health concerns, financial planners can benefit immensely from the insights of a coach or fellow professional.
So why don’t we seek help?
Beyond the cognitive biases, there’s an emotional elephant in the room: the feelings of shame and fear of judgement that come with discussing our personal finances with other financial professionals. As financial planners, we’re expected to have it all figured out. The thought of admitting to a peer that we’re struggling with our own money management or that we’re unsure about a financial decision can feel like confessing to professional incompetence. We worry: “What will they think of me? Will they see me as a fraud? Will this damage my reputation?” This fear of judgement – both from others and from ourselves – can be paralysing. I say this with buckets of love having seen students in our Financial Coach Training release huge amounts of shame when addressing their own relationship with money
It’s crucial to recognise that these emotions are universal, even among financial experts.
Acknowledging these emotions is the first step towards overcoming them and opening ourselves up to the growth that comes from seeking help.
Embracing the role of both expert and learner can lead to profound professional growth. By acknowledging our own need for guidance, we not only improve our personal financial outcomes but also enhance our ability to better serve our clients. We gain a deeper understanding of the vulnerability and trust required to open up about financial matters, making us more empathetic and effective advisers.
What a ripple effect this would create!
Don’t let behavioural blind spots hold you or your clients back.
Catherine Morgan, Author of ‘It’s Not About The Money’ and Founder of The Money Panel.
If you are curious to transform your own relationship with money, click here to learn more about The Money Panel Financial Coach Training Program For Financial Professionals.
If you have enjoyed reading this and it has got you thinking about finding a financial planner or coach for yourself, why not share this article on your LinkedIn profile and put a call out for one!
