The soft side of advice

The ‘soft side’ of advice is all about what for a number of years Strategi has referred to as finology - the intersection of finance with psychology. Finology, or the soft side of advice, goes to the heart of the current debate around what is the “real value” that financial advisers deliver and that clients are willing to pay for?

This “value” has morphed over time. Decades ago, it was picking investments and facilitating transactions. Then asset allocation and money management came into vogue. In the past 15 years, financial planning has become popular in parallel with the rise of financial planning software such as MoneyGuidePro, eMoney and NaviPlan in the US and the likes of Xplan, BasePlate, Omnimax in NZ.

Underlying this has been the accelerating pace of technology change as smartphones make the non-behavioural aspects of saving and managing money as simple as a few screen taps.

Today, many financial advisers who remain wedded to the way they’ve been doing business will soon find themselves potentially suited for a world that has less and less relevance. They’ll be chased out of business by prospects who never became clients, and by clients who left to work with advisers better-suited to their evolving needs. One only needs to look at Sharesies in NZ to see the phenomenal growth that can be achieved. In less than two years, they have gone from a start up to now having close to 40,000 clients.

Just like smartphones replaced laptops, and laptops replaced desktops, the value delivered by financial advisers is shifting from being “all about the money” to a focus on helping clients align their money behaviour with their life satisfaction.

In this world, money is simply a tool. And the adviser’s role is to smartly manage the money and collaboratively guide the client’s behaviour so they can live their best life possible with the money they have. 

In this world, advisers who remain focused on the “mechanics” of money will be replaced by advisers who focus on the “alignment” of money.

As technology automates much of the mechanics of money, advisers need to evolve to the more emotional aspects of money. After all, simply helping rich people get richer isn’t usually a driving motivator for advisers - or clients.

The soft side of advice really digs deep into things like:

  • Helping clients better define their goals and then keeping them on track regarding those goals
  • Dealing with highly emotional events such as death of a spouse, divorce, relationships once the kids have left home, Alzheimers/dementia, redundancy, retirement, downsizing, etc

Adviser education tends to focus on the product and logical side of investing and there is very little on the soft side of what advisers do.