Value Above Technology: Advisors as Coaches

Executive coaching is estimated to be a $1 billion industry. These counselors, psychologists, and former “C-level” executives coach leaders to build competencies and skills required to be effective and successful at their high-level, high-stakes job. While coaches use technologies and numerous methodologies to assist in their practices, personal interaction is at the heart of the business.

Like a C-level role, the job of household money management is multi-faceted, and includes many complex tasks: budgeting, creating long-term goals, investing, estate planning, and managing relationships (e.g., spousal) related to finances. Each client has different knowledge, skills, abilities, interests, and personalities that make them unique, and also make them more or less qualified to complete those tasks successfully. Some tasks require high levels of knowledge (taxes, estate planning), which is often the catalyst for seeking the help of a professional advisor in the first place; others require empathy and coaching (working with other family members to manage budgets); and some require great resiliency and a long-term outlook (think investing).

Behaviors impact financial outcomes—whether you are talking about investment returns or net worth. Likewise, when considering investing results, Vanguard estimates that investors who work with an advisor have better returns those who do not (the so-called “Advisor’s Alpha” study). To compete with the technologies that are threatening to change the nature of the advisor-client relationship, advisors should consider implementing an executive-coaching model when working with clients. Coaching and development is a relationship-driven endeavor, most effective when applied in the context of a well-developed direct personal relationship.

Advisors focused on being more than a portfolio manager can use this perspective to change how they coach and develop clients. Measurement is critical, and assessing clients’ non-technical competencies allows advisors to start coaching effectively and efficiently. Measuring sets of behaviors and experiences that predict financial success is one step in this process. Knowing a client’s strengths and weaknesses in these critical behavioral areas allows for focused coaching and development, including:

  • Providing specific, actionable advice to help clients improve behaviors in areas that have been shown to predict future performance;
  • Acknowledging the strengths, weaknesses, and complements of each partner when managing couples; and
  • Tracking improvements in these areas and demonstrating value over time.

Even if the client’s role within the household (or his/her spouse’s role) has little to do with investing or retirement planning, everyone is in the job of managing personal finances and can benefit from understanding how their actions impact their financial success. The advisory side of financial services should acknowledge and embrace this reality as technology threatens to take over the mechanics of money management. Our research has shown that individuals with higher scores on the DataPoints Building Wealth assessment save more money each month, make better investment-related decisions, and have a higher net worth independent of age and income. For clients scoring lower on this assessment, advisors can tailor their advice to help their clients improve behaviors in key areas such as confidence in financial decision-making and consumption, effectively partnering with them to favorably impact long-term financial outcomes.

Building financial competencies through effective coaching and development founded upon a personal relationship gives clients a better chance at building and maintaining wealth, which in turn allows for advisors to demonstrate value above and beyond the technical mechanics of traditional financial advisory services.

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