#FinSci: An Attorney, An Advisor, and a Psychologist Walk Into A Mediation…

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…And the Psychologist leaves and goes to a bar instead.

Ba dum bump. The bad joke is to highlight an emerging trend in advisory businesses. Some firms are now partnering with psychologists to keep families from imploding as money from a parent or wealthy relative is divided.

What’s the shrink for?

“Wealth, particularly sudden wealth, can create anxiety and confusion,” writes Mitch Lipka in Wealth Managers Seek Psychology Skills. And we’re going to have plenty of sudden wealth issues on our hands because baby boomers ain’t getting any younger and are projected to pass along “an estimated $41 trillion through 2052.”

“Between 65 percent and 75 percent of families fail in the transition of money from one generation to the next — either by losing much of the inheritance … or by losing family” according to a frequently cited study by The Williams Group.

It should come as no surprise that psychologists are getting involved in familial financial decisions. Emotions, Daddy-issues and long talks on chaise lounges are familiar territory for shrinks. But add in financial planning, investment recommendations, technology-challenges, and quarterly reports and it could easily describe an advisors day to day. Tim Maurer’s quip that “personal finance is much more personal than it is finance,” is something that most advisors know intrinsically.

But what do you do about it? How can you help? We think that with a little homework, you can arm yourself with enough basic psychology and emotional intelligence to help your clients navigate choppy emotional waters and achieve their financial goals.


If you’re gonna use a psychologist …

So, how and when do shrinks get involved in financial advice? Upfront.

[Psychologists] work alongside financial advisers, estate attorneys and accountants who bring [them] in to try to ensure that those who are about to receive large sums of money, or have recently come into it, are able to wrap their brains around a plan to help them hang onto to it. “It’s not about what’s wrong with you — why are you irresponsible. It’s about what are your goals and how do you get to them,” Jamie Traeger-Muney said.

The key to using psychology to help smooth out the transition of wealth, he said, is to make it part of the process rather than as a last-resort when things blow up. “I’m part of the process. It’s normalized. It’s not as if they say something and it triggers (an intervention).”

Also, a little marketing may go a long way here. While some clients may be open to this idea, for many others calling in a “head doctor” may make them a little uncomfortable. Calling in your “wealth coach” or similar may help them feel that it’s more a high-end service you offer and that’s how you want this to feel. Make sure you bring these professionals in at the beginning of a transition process or better yet, at the beginning of the client relationship. Presenting your “wealth coach” as a standard offering–something you just do–will make it ‘opt-out’ rather than ‘opt-in’ and should get most clients over any hump.

Hey, that sounds expensive …

I mean realistically, except for your wealthiest clients or for those of you who exclusively serve high net worth, the costs involved may be hard to swallow. In that case, which is most cases, you probably need to do both jobs yourself. Let’s face it, you do much of this work already, managing both their money and their emotional baggage. But it turns out this process isn’t about emotional baggage: “It is more about helping those involved to communicate.”

Cash Conversation is king.

Remember the first #finsci post, Psychological Capital: Can It Improve Financial Services? If you’re a people person (and if you’re not, you can learn to be one, but that’s for another post), then, chances are, you can effectively guide your client and his/her family towards conversation and away from estrangement.

The article mentions a psychologist advising a client not to send an email to her sibling that she thought was friendly, but was actually filled with loaded comments. Instead, the psychologist suggested a conversation between the siblings before a cold email. Another example is of a daughter who held a high-level position in the family business only to be fired after her wealthy father remarried to a woman she didn’t get along with. This led to their estrangement and her exclusion from the will. The psychologist suggests maintaining an open dialogue with her father, and bada-bing, he ends up giving her a share of his wealth. I think you can do this.

What do you think? Can an financial advisor give personal advice to their clients? Do you have to in order to make your business work? Will clients accept that advice? I think the best advisors are already doing these things, encouraging conversation among families to better resolve financial disputes. Examples? Thoughts? You know where they go.

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DJ is a freelance writer, hopeful photographer, and social media has-been. He writes to financial advisors about lifehacks, science, technology, business and marketing for Blueleaf, a software that helps create dramatically simpler, more scalable financial advisory businesses. You can find DJ across the web (about.me/djswitz) or you can just follow him on Twitter (@djswitz)!