Back in 1999, I worked as a consultant to a large fiber-optic cable company that was staffing a new plant in Pennsylvania. For months, our crew of grad students and industrial psychologists administered validated tests, interviews, and work samples to thousands of potential candidates to fill manufacturing roles. In the work sample, applicants had to coil thin, translucent cables into circles and pack them into thick, zipper-top bags while racing against a clock. Only some applicants had the dexterity, fine motor coordination, and composure to complete the task successfully. In the structured interviews, the applicants’ answers revealed that some had the disposition to work on a manufacturing line requiring complex but repetitive actions, while others didn’t. These tests were predictors of future performance: good performance on the tests meant, in general, good performance on the job in the future. Each step in the hiring process was a scientific way to assess strengths and weaknesses before making a hiring decision.
Contrast this example with the job of personal financial management: it’s a job in the sense that we can identify the tasks (e.g., budgeting, planning, investing) as well as the predictors of success. But in the case of managing personal finances there are key differences: 1) we don’t apply or necessarily express overt interest in it– it’s just something that everyone in a free economic society must deal with whether they want to or not, and 2) if we ignore it or don’t actively participate in the endeavor, it could mean complete financial ruin.
So, although we aren’t “hired” into the job of personal financial management, behavioral science, and predictors of future financial success, are still critical. How can advisors coach and develop disparate individuals to greater financial success–everyone from armchair-investment experts to those that believe credit cards mean “free money”? The same science that helps organizations determine who to hire, how to coach leaders, and how to train employees can also be applied to developing success in household personal finance. There are critical skills, behaviors, and attitudes required to perform this job, and like any good coaching program, assessing critical strengths and weaknesses is the first step in helping someone become more successful. Determine and highlight client strengths using valid and reliable tests, and then use your relationship to coach and develop their the financial competencies that may be challenging for them.
Viewing financial management through this lens allows advisors to be holistic in the sense that their relationship management/coaching efforts will be more successful and targeted: coaching greater confidence in financial decision making; building their clients’ awareness of spending patterns in relation to others; highlighting where they can take more responsibility with their financial practices. Building confidence across all aspects of this complex job should be the focus of any truly holistic advisory practice–and thus transforming clients into successful financial managers themselves.