Back in September, Money Marketing’s cover story looked at the importance of psychology in financial advice and how it could help advisers gain a better understanding of their clients.
The successful advisers, it argued, will be those who guide clients to strike the right balance between emotional and financial needs.
While this is far from easy, it is essential for achieving financial wellbeing.
Tom Mathar, head of Aegon UK’s Centre for Behavioural Research, identifies this challenge as navigating a path between present and future financial security, as well as between present and future contentment.
Many people seek financial advice for emotional reasons…
Central to Mathar’s philosophy is the distinction between immediate and delayed gratification.
“Immediate gratification is easy to recognise,” he says. “We experience it when we enjoy a quick fast-food meal, satisfying our immediate need for food. However, in the long run, it may be unhealthy.”
By contrast, delayed gratification involves decisions that benefit us in the future, such as saving for retirement or pursuing long-term educational goals. These, however, may seem less urgent or even unaffordable in the present.
The solution, says Mathar, is not to focus solely on one or the other, but to harmonise both. In other words, it’s to find a way of achieving ‘balanced gratification’.
…and Mathar says advisers who are attuned to these emotional drivers will deliver a different kind of advice
This concept — also the title of an upcoming book by Mathar — is a middle ground where we can enjoy life’s small pleasures today without sacrificing future financial security or personal happiness.
Navigating trade-offs
At the heart of balanced gratification is the mental discipline required to navigate life’s trade-offs. The difficulty, as Mathar explains, lies in “balancing financial security for today with financial security for the future, and finding happiness now versus happiness in the future”.
This challenge is something every client can relate to: how can you ensure that your financial plan meets both your short-term desires and your long-term goals?
The advisers of the future will act more like life planners with a strong financial component
In Mathar’s view, the advisers of the future will act more like life planners with a strong financial component, rather than the traditional ‘alpha’ types who focus solely on performance metrics and portfolio optimisation. What matters more, he argues, is understanding clients’ values and goals, and helping them navigate their journey with these in mind.
“Advisers can be very helpful in addressing this,” Mathar says, “helping clients make trade-offs that align with their life aspirations.”
He illustrates this concept in presentations by showing a sample one-page financial plan for use in meetings. The plan includes sections on values, goals and current status, and a wellbeing objective for the next 18 months. This holistic approach ensures that clients consider both the present and the future in financial decisions, while being satisfied at all stages.
Mathar also notes the relevance of balanced gratification to the more difficult aspects of life, such as dealing with pain and setbacks.
Central to Mathar’s philosophy is the distinction between immediate and delayed gratification
For example, ignoring financial problems may reduce stress in the short term but probably leads to long-term difficulties. Similarly, quitting an unsatisfying job could cause temporary financial insecurity but may pave the way for a more fulfilling career.
“Here, too, the concept of balanced gratification applies,” says Mathar. “It teaches us to accept the challenges of the moment while planning for the future. This way, we create a life that is fulfilling and meaningful both in the present and in the long run.”
Of course, many people seek financial advice for emotional reasons, such as the need for validation, overcoming fear or indecision, or simply seeking permission to make a change. Mathar argues that good advisers listen to these emotional needs and provide holistic advice that goes beyond financial metrics.
The solution, he says, is to find a way of achieving ‘balanced gratification’
“Advisers who are attuned to these emotional drivers will deliver a different kind of advice; one that is more likely to get referrals, be profitable and make advisers feel optimistic about their future.”
As always, it’s all about striking the right balance.
Tom Browne is editor of Money Marketing
This article featured in the November 2024 edition of Money Marketing.
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