The Psychological Impact of a Financial Planner and the Bond That Develops
August 18, 2021

Heritage Partner and Financial Planner John McCarthy shares his insights in this article on the possible psychological impact a financial advisor might have on his/her client.  John also discusses the significant roles advisors play to help keep the entire family on the same level and examines the impacts of a trusted relationship between client and financial advisor.

Financial Planners are many things to many different people. Sometimes, they’re present in the lives of clients simply to manage their finances, but other times, the relationships run much deeper.

A financial planner should be a key cog in the lives of their clients, especially as they begin to plan for critical life decisions.

These decisions and the advice given by a financial planner can have significant psychological impact on the client. Planners can be detached emotionally from money, but after a while, they begin to know their client, inside and out, and essentially, become part of their extended family. In effect, the role of the planner is part therapist to a client, helping guide them to the right decision by lending perspective.

Of course, making sound decisions and guiding clients through the financial planning process as best as possible is very important. However, it stretches far beyond that.

Planners begin learning the various layers about someone in working with them: their family crises, their health situation, their marriage dynamics, what’s going on with their kids and all the various stresses and worries people have in their day to day lives. The philosophy that I incorporate includes taking the time to foster and develop that relationship that frankly, many other planners aren’t doing.

A unique dynamic exists because of the impact a planner makes to help the client understand and see the “big picture.” The relationship becomes an intimate bond and instant connection, something that is the result of the planning component, in turn, helping to foster that connection.

As a trusted source, we play a significant role as someone that keeps the family steady on some level. In each situation, I could speak to a spouse about an important piece of information to consider that the other spouse had been talking about for months. But because the information is presented by a trusted planner, things tend to “click” at that point to help shape a better outcome.

The impact a planner makes goes a long way in helping families because we understand the big picture and can create a strong bond and trusted connection with the client. We know so much more about our clients that very few others do, which plants us firmly in a unique place in their lives. That’s a dynamic that doesn’t often get discussed.

Oftentimes, finances become a quirky situation because people don’t like to share their financial or medical situation with others they know, but they share both with their financial planners.

The psychological impact that planners play, in terms of the total return that clients receive is also critically important.

Some clients are concerned only with fees and performance of their portfolio from a comparison purpose. They want to pay the bare minimum fee for the service, and don’t consider a planners’ expertise or develop that valued relationship that creates a significant amount of value one cannot quantify but is extremely valuable. This personality trait is usually not a good long-term client in the grand scheme of things as they do not value the planning and advisory role that the person brings to the table.

Also, as we have unfortunately seen many times, if there is not a trusted relationship between the client and planner, the real-world consequences can be significant.

When the market is hot, clients are usually happy, and many times may not even be paying attention to their portfolio. They also tend to want to add to their portfolios during these market highs, delighting in seeing their wealth grow and buying into the momentum. But when a market goes through bear cycles, human behavior is to cash out or to stop the bleeding and certainly not to add to their portfolios and buy low.

This counter-intuitive thinking leads to horrible total return dynamics and without that relationship where a planner gives perspective and guides a client through these cycles, their performance is dramatically enhanced where those without a financial planner suffer poor performance. The crowd that goes this path also gets caught in a vicious cycle waiting for another dip to buy back only seeing the market run up into a new Bull market. Once they decide to throw in the towel and invest, it’s near the top of the cycle with another Bear looming.

A financial planner brings tremendous value during these cycles and plays the crucial role of navigating the up and down cycles and further enhancing return therefore positively impacting their overall plan.

This is often the trap that we explain to new clients who have been caught doing this themselves because they managed their own money or worked with a passive professional that did not guide them but was more an order taker. In every circumstance, these clients understand and immediately see the added value a financial planner can become for them.

Most of those that do panic won’t tell others they lost half their account by cashing out and then the market rebounded right away. That’s where the psychological element comes into play because when you have someone that you trust and can provide sound advice and strategy, it’s significant on total return for their portfolio. When some cash out, there’s a tendency to get back in and they can never quite find the right time to do so, as opposed to staying the course. Looking at the psychological impact that a planner has when you look at the relationship that exists; it can never be quantified but critical for the client.

In return, the next time a bad market comes, a client won’t call in a panic. They will do the right thing because they’ve already had that emotional experience and know what not to do. It solidifies the relationship, beyond just “managing money”, as they’ve placed full trust in the relationship and in my guidance.

You have to be convicted for your clients and some financial planners aren’t. Their goal is to make the client happy and not rock the boat. As a client, you want to have a planner that strongly believes in the guidance they provide, sticks to their guns and is transparent with them so the client does not hurt their own financial future.