Advisers need to teach their clients about the reasons behind the relationship they have with money, Institute for Financial Wellbeing founder Chris Budd has insisted.
During a keynote speech at NextGen Planners’ Elements conference today (12 July), Budd spoke about the “set point of happiness theory”.
This states that everyone has a standard level of happiness.
That level may vary throughout the day, but in general, people have a standard level of happiness in their mood.
Budd said half of this is inherited and 40% is caused by a person’s “intentional activity”, including their relationship with money.
However, just 10% is caused by a person’s circumstances, including their wealth.
“If you increase your client’s wealth by 50%, you’re only increasing their overall wellbeing by 5%,” Budd pointed out.
“But if you also teach them about their relationship to money and you improve that by 50%, you can improve the overall wellbeing by 25%.”
He said that by focusing so heavily on wealth, advisers are “starting at the wrong place”.
Chris Budd: Are your clients collecting wealth or wellbeing?
“We should be educating people about the what kind of relationship they have with money,” he said.
“The way I like to think about this is by using an aquarium analogy.
“I once saw an old lady who was buying a fish and her daughter said to her: ‘Remember Mum, you don’t look after the fish, you look after the water.’ ”
Relating this to client conversations, Budd said that it is, of course, important to talk to clients about their money.
However, he insisted that advisers really need to talk about their clients’ lives. “That’s what matters,” he said.
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