How to Give Clients What They Really Want

But what’s the point to save on taxes if you poison relationships? You enhance financial well-being but destroy life well-being.

“Financial advisors must evolve into well-being advisors if they are to compete for today’s and future clients because many traditional services of financial advisors are now generic,” you write. Please elaborate.

I’m an advisor to a robo-advisor [Wealthfront], and I therefore know robo-advisors. I think that, even with artificial intelligence, a robo-advisor won’t be able to [create] an emotional bond with a client.

So human advisors have a comparative advantage. 

What’s one significant expression of that?

[Clients] expect the type of bedside manner from a financial advisor that makes them feel: I trust this person; I can speak about things that are embarrassing.

But what’s the financial advisor’s challenge?

People are reticent to disclose such parts of their lives. So being able to prod them [to do so] and make them comfortable is really important. 

Disclosing your own injuries of life might be a way to help make the cross-over.

But if advisors continue to say, “My advantage is that I know hedge funds better than the typical investor,” it’s nice — but that technical skill isn’t sufficient. And even if they promise higher returns, well, the market is fickle.

Does holistic financial planning generate life well-being?

Yes. They’re identical. Holistic planning advice [encompasses one’s entire life], including education, health, religion.

“The domain of finance underlies well-being in all other domains,” you write. Please explain.

This is important: If I ask people what’s really important in life, they’re going to say, for example, family, friends, religion.

But you really need to have money, though you needn’t be wealthy.

You declare that the third generation of behavioral finance is here. What characterized the first and second generations?

We started with a model of people as rational [beings who want to] maximize wealth — the first generation [in “What Investors Really Want”].

Then we said, but people make mistakes. Some of what we call mistakes is a search for expressive and emotional benefits.

People derive those benefits from staying true to their values, such as with socially responsible investing. My book, “Finance for Normal People,” describes the second generation as people wanting more than utilitarian benefits.

The third generation is much broader. People want well-being because it encompasses all of life, not just financial well-being. It’s expanding the circle of finance.

Do you think more advisors will become well-being advisors?

I send my students to internships. Some go with financial advisors. Many have a sense that a financial advisor manages money, analyzes stocks and creates portfolios. 

Then they come to work and find it’s mostly a matter of human relationships, hearing about the client as a person. Some interns say, “That’s not for me. I pride myself on my technical skills.”

Others say, “I really like to work with people.”

But at the end of the day, their life will [actually] be: getting clients to think about what to do with a kid who doesn’t want to go to college; serving people with mild forms of dementia, clients who need a trust for their disabled child for when their parents are gone, clients who need to support elderly parents, adult children who are down on their luck.

So people who want to become financial advisors have to consider all that.