Video Human-centric advice: Rethinking the role of financial advice for real lives

00:00 Hi. On this CPD hub, we have loads of content that help you with the technical and functional components of delivering financial advice. Be it market outlook, spirit, compliance considerations, be IT tax considerations, and so on. In this session we're going to step back and we are looking at why we are actually doing all of this. We are considering the purpose a little bit.

00:33 And the purpose, after all, is that we are seeking to serve clients, or rather, and this is a distinction that I'm going to make in this session. We are serving humans. So one of the things I want to do in this session, I want to reflect a little bit. What does it mean to be human centric as opposed to client centric.

00:53 And the argument that I'm going to develop is along those lines, I will first of all, look at the role of financial advice and why people actually seek financial advice in the first place. They see that as a bit of an implicit question in there, which is that there is one objective and one reason that we can all like, quickly relate to.

01:20 And then there is perhaps another or real reason. Then I will look into the notion of human centric advice, and I will contrast that with client centric advice as well as with product centric advice. And then lastly, I will look at what human centric approach actually may mean in practice. Okay. So this is when we become very tangible, right.

01:47 Let's dive right in then. And let's look into the reasons for why people seek financial advice in the first place. Now you all know this when I when I ask a question like what is financial advice actually for? We will be very quick to identify the utilitarian reasons for why people seek financial advice or the things that you see here on the slide.

02:11 Things like tax planning, estate planning, retirement planning, transition for life, life transitions, etc. all those things. And you know, this stuff of course, inside out. So I don't have to explain that. And of course, it's the right answer. It's an it's an objective reason for why people seek financial advice. But I will challenge you with this thought here that I believe you would perhaps agree the majority of clients, when they come into your practice, when they meet you first time, they hardly ever say something along those lines that you see here on this page.

02:48 Differently put, people are not really that sort of goal oriented. They're really not interested that much in portfolio construction, all those things, if really that was the case, if clients wanted that for financial advice, then really technical and functional skills as well as good communication skills is all you needed. But I think it is much more likely that when clients meet you first time, they're saying something along those lines that you see here on this page, and the argument that the point here is that when you look at that, that it's just take the first statement here.

03:24 I want to be certain that I don't run out of money and retire. And there are perhaps one could call them quality of life or wellbeing oriented goals. Yeah. There's also, you know, there's a hint of that in that first statement that there are emotional reasons for why people seek financial advice. So in this first example here, there's perhaps a hint of anxiety or a hint of fear.

03:46 Yeah, that they may be running out of money. And I think this is really, really crucial to acknowledge that are, of course, the objective reasons for why people seek financial advice or the utilitarian reasons, I should say. But then on top or perhaps underlying those are driving those utilitarian reasons, the emotional and well-being or quality of life oriented ones.

04:09 And the other examples here we see things like, you know, they they're wanting to get rid of, unpleasant tasks. They're perhaps wanting to use the financial advisor to verify their thinking. Perhaps they are doing it to do someone else a favour. There's a there's a number of reasons. And, Moira Sommers, in her excellent book called Advice That Sticks, she elaborates a little bit on the various emotional drivers.

04:36 So that's a recommended read. So I guess, you know, in essence, what I'm saying here is that we've got to perhaps think a little more laterally about what clients actually want. I think what we believe clients want is perhaps slightly different from what clients really actually want. So we assume that clients are goal oriented. And, you know, when we ask them, what is your financial goal, then we believe that they are perhaps very quick at and able to formulate what their financial goals are.

05:09 I would go as far as saying there is no such thing as a financial goal. That's only personal goals with price tags attached and the personal goals that people have, they really link to values and principles and centres to the things that really matter to clients in the first place, right? So they're actually much more values driven rather than goals oriented.

05:33 I would also say, and I made the point already, they're not necessarily utility focused, right? They're not necessary. It's not about maximizing wealth. The wealth has a why, as Doctor Daniel Crosby would put it in his book, The Soul of Wealth. So there is a reason for why they actually want to accumulate the money, or the money serves a deeper purpose.

05:53 And to understand that, I think it's very important for future financial advisors or for life, for financial advisors who consider themselves more like life planners, who want to have that ongoing relationship with their clients, I think it's important to appreciate that people are not rational decision makers, as in, you know, you present them with what is the objectively right, like as according to the textbooks, it is the objectively right path of going about your finances versus the emotional side of this.

06:24 A good example is perhaps, you know, annuity versus drawdown or, flexi drawdown versus a smoothing mechanism or whatever, or, you know, the old question of should I pay off a mortgage or save for retirement, those types of things. So there's perhaps a rationally right answer to this, but I think you need to appreciate that whatever, the client may be opting for instinctively or intuitively or emotionally is an important data point to consider when we are wanting to improve the financial situation.

06:57 And we believe there's a there's an objectively financial side to it, as well as a call it subjective, softer side to this is really important to consider. And then lastly, I think we oftentimes believe that clients, when they seek financial advice are future focused. Well, of course they are future focused. They're kind of concerned about their future.

07:17 And to get to get future stability and, you know, to be able to fund a happy life and the future. That's one of the reasons why they're seeking financial advice. But I believe it's equally often also about the presence I've met financial advisors who tell me that oftentimes clients reach out to them in the first place, because what they want to know is whether they can stop working those stupid hours, or whether they will be fine in the future if they now discontinued working crazy hours.

07:45 But whether that is okay for the household finances long term, right. So there is a bit of a presence, from not presence bias, but a consideration, a trade off, I suppose, between present and future. Right. I mean, financial well-being, I suppose to get financial well-being right is so hard because ultimately it's about trade offs between financial security now and financial security in the future, as well as the happy life now and the happy life and the future.

08:14 Right. I think it's perhaps something that we are all finding, hard to to think through and to find the balance for. But I think really, you know, to help with that, with those trade offs, with that thinking that is what financial advisors are therefore. Right. I mentioned this briefly in the beginning, the, notion of human centricity as opposed to clients that centricity or customer centricity.

08:40 So let me explain very quick what I mean by that. And perhaps the best way to do this is to draw a contrast. What does it mean to be human centric as opposed to customer centric or product centric? Let's start with that actually product centricity. And perhaps Aegon is a good example for product centricity when you look at the history of the company.

09:00 So Aegon is nearly 200 years old. And when we started, it was all about the life insurance products. It was about the investment products of pension and retirement products, etc.. Okay, it's very product centric. So we were just, you know, pushing or, you know, putting a lot of effort into getting the products right. So and that of course, meant we looked into profitability, into features and, and all those things.

09:25 Yeah. Then perhaps in the aftermath of yeah. When what might have been perhaps like roundabout 2007 or so that's when not just Aegon, but in financial services in general, I would say there was a huge push to becoming customer centric. Right. And as part of that, I mean, treating customers fairly, for example, the piece of legislation that came out of the FCA at the time.

09:51 Right. The point here, of course, was that we really wanted to understand, well, what are the client's deeper needs? Yeah. What are their, what do they need to us to be satisfied? How do we, you know, make sure that the risks are not only understood by us and, you know, those who build the products, but they're also understood by the clients.

10:14 That was a lot of, the effort really behind treating customers fairly, that we needed to disclose the risks, that we needed to be very transparent about the costs, etc.. All those things. Now, I would say that when you think about it, being customer centric or being client centric still actually has at heart a rather transactional understanding of the relationship between product producer or service producer and product recipient or service recipient.

10:45 That there's still that transactional, understanding of the relationship, I would say. Yeah. Because after all, you know, a customer is anyone who simply buys a product at all who buys a service. So it doesn't really matter, you know, if it's a customer of test scores or a customer of, I don't know, a holiday or a customer.

11:06 You know, the customer is always someone who buys a product. So it's still, as I say, a rather transactional understanding of the relationship. What it means to be human centric, however, means to appreciate that that recipient of the product, that recipient of the service is a human. And what that goes to highlight is that that recipient has instincts, has emotions, has values, has context factors that perhaps enable them or sort of impede them.

11:35 They have motivations, they have vulnerabilities. They have all those things. Okay. I think I would argue that consumer duty is a good example of a piece of legislation that is now informing or nudging the industry to become human centric, as in, as an example. You know, I picked up, I talked about, conveying risks. And the way we would have done this in the more recent past is we would have given lengthy documents that outline all the risks in consumer duty.

12:04 You know, this is no longer good enough because consumer duty encourages us to appreciate that the human brain doesn't work. Such. Yeah, we're not reading a 40 page document. We've got to be much clearer. We've got to think about layering. We've got to think about layout. We've got to think about, you know, putting most important information upfront, etc., those things.

12:23 So this is really, I would say, an example of human centricity and a way of working that appreciates that as humans, okay, we have those things. We have instincts, we have emotions, we have motivations that there are all sorts of software things that drive our behavior. Right. What might a human centric financial plan look like? And we've mocked this up very quick.

12:50 So this is a, an example of don't get too bogged down by the figures. But really the essence of the purpose of this is to show that as a way of combining the financial with what matters in life. Okay. So you see here at the heart, you see, of course, the net wealth at current position, but you also see a bit of cash flow.

13:12 You see, you know, the withdrawal rate, you see the IHT liability, etc.. I mean, these are all examples, figures that the point is that this at heart links to what matters to the client. So you see the in the top left corner your principles I calls here your principles. You can call it your centres or you can call it your values or you can call it, you know, your deeper beliefs or you know, there's different ways.

13:37 Steve Covey, the author of the Seven Habits of Highly Effective People, he speaks about centres, right? So it can be family centred. You can be work centre. You can be, you know, partner centred. You can be money centred. There's different there's different types of centres. But the point here is you want to be a evaluating these and then see, or work out with the client how these can link to deeper, to, to goals that this person may have.

14:05 Right. And then we have that on the right hand side, a bit of an overview. And we have in the top right. Sorry. The bottom right. We have an example of a financial well-being goal in the next 18 months. Now this is something that picks up something that I said earlier. It's not just about the future. It's also about the presence.

14:25 There's a number of reasons for why I think it may be worthwhile to highlight the financial well-being related goal in the next 18 months, and credit here to making starts from, shaping wealth, whereas come up with that idea. I think it's a tremendous idea. And as I said, there's a number of reasons I will just highlight two.

14:45 Number one is we are typically not very good to identify actually what makes us happy. Happy in the sense that, you know, Paul Dalton, the behavioral scientist at LSI, defines it an even balance of pleasure and purpose. Moments, activities, experience things. Right. So you want to have we want to have those things. We want to have an even balance of moments, activities, experiences that give us a sense of, you know, words that make us useful and competent, worthwhile, etc. on the one hand, and we want to, on the other hand, have experience that's activities, moments that, you know, give us gratification, that give us joy.

15:29 Now, as I say, we are not very good at identifying what that actually is. So having identifying a financial well-being related goal of the next 18 months really encourage is that thinking, okay. And makes sure that we are spending money in line with things that make us happy. Now, the second argument is, I will say that this is in a in a in a weird way, this is this is, a way of retirement planning.

15:56 And the reason for this is such you perhaps know this from your own practice, but there is, at least in my experience, an increasing number of anecdotes of advisors who are telling me that actually giving their clients permission to withdraw their savings, to spend the money they have saved. Right. But the clients find it really hard to actually do so, and I find it hard to do so because they've been they've become habitual, save us over the years of their working lives.

16:30 So to make that leap from saving to spending is really mentally hard. So what I would say is that if throughout the years of accumulating wealth, you have sporadically also a point in time where you spend money, okay, you meaningfully, purposefully spend money, then you actually also learning how to actually do that. Right? So, so that when retirement comes, it isn't that much more of a leap, right?

16:59 You've done it before. You've actually practiced spending money. So that's why I believe in a, in a weird and funny way, to have those financial well-being related goals in the next 18 months as a way of retirement planning.

17:15 We stay in practice. I hope to be, you know, a bit tangible here, for, the to bring the notion of human centric advice to life. So I want to I want to remain in that space. And I want to give two more examples of how you can apply human centric thinking in practice. And what I do is I will look into two types of meetings.

17:40 One is the meeting with a prospect. So someone comes in you haven't met before, and of course you want to, you know, convert that prospect into a long term client. But how do you do that with a human centric approach? And then at the other end of the scale, I want to look into client review meetings with long term clients.

18:01 Again, something that we sometimes hear is that after a while, the relationship with long term clients goes a bit stale. Yeah, it's not necessarily at risk. Retention rates are high, but it could be revived. It could be made better. And for that purpose, we have designed the hopes and fears, approach. And, all this what I'm presenting here, you find more examples of and more deeper sessions in the CPD hub so that if you are interested, you can you can dive into that and learn more.

18:35 So I remain at a rather yeah. Top level here when presenting these two approaches, these. So what I will do especially is I will look into questions you can ask when being in the meeting, when in that and in that encounter with the client now. But before I will look into this, before I will go into the questions you can ask.

18:59 I want to highlight this, rule of thumb that was really, made popular by Brandon Frazier, the host of the Human Side of Money podcast, an excellent podcast. I recommend, listening in to. So he speaks about the 8020 rule of thumb, which really says 80% of the time you're listening and 20% of the time you're speaking.

19:19 Now, easy to say, but in practice it's really, really hard, right? We find it so hard to just, like, lean back about. We would still be leaning in when listening, but to like, actively listen, to actively listen and not speak. Yeah, we find that really hard. I mean, you know, go to a bookshop, you see tons of books on how to speak.

19:38 You see hardly anything on how to listen. It's really not a skill that we have learned of that we have much chance to learn. So when I speak about listening, I think I think of three layers, three ways of listening. First is you want to wait for an opportunity to speak. Okay. That's a quite superficial or top way of listening.

19:58 But the second level, you want to listen to what is being said at a deeper level. And then thirdly, you want to listen to what is also being said or what is perhaps not being said. And the latter is of course, really difficult, right? Because there's tons of things that are not being said in a situation. So how can you do this methodologically and systematically?

20:22 And this is where I find the, foresight model from communications psychologist Friedemann Schultz. Fine tune. Really interesting. But what he says essentially is that in every piece of information that is being conveyed is being expressed. There are four sides to it. Number one is there's a factual piece of information. Number two, there is a relationship message. And then thirdly, there is a bit of self-revelation in there.

20:49 So you say something about yourself. And then lastly there's an appeal okay. So you want to achieve something with the statement, the example that Friedman Schultz uses to bring that to life is the example of a couple who are, driving in a car. She's driving, actually. So they're in the car and they're now at a traffic light that is red, and they're waiting for that traffic light to turn green.

21:13 I just say she's driving. She's behind the steering wheel. The traffic light turns green and he goes, it's green. Right. So there's of course the factual piece of information here, right. It's green. But there's also something like self-revelation here. Yeah. Some something perhaps to the effect of, you know, I'm in a rush or, you're not taking me seriously or, you know, it could be tons of things we don't know.

21:38 That's, of course, a relationship message and that perhaps one that is, you know, indicative of a long term relationship, between husband and wife. And then lastly, there's an appeal, and the appeal is get going. Yeah. So, so you see here there's just two words. Well, two words abbreviate three words. It's green, but there's a lot you can actually take out from that statement.

22:02 Now consider in your practice, in your everyday working life, you may come across a client who says something like, I want to know when I can retire again. And on this page here, you see how you may actually is wanting to start thinking about what is being said at a deeper level, what is also being said, what is not being said when someone says this?

22:23 Yeah, and that's the point here is there's a lot to identify. There's a lot to unpack when someone says that. Right. We don't know, what exactly the, you know, appeal is or what the self-revelation is, etc.. So there's a lot, a lot to unpack. Two more things very quick before I go into the questions you can ask at the, different points in the client advisor encounter, number one is when you listen to what people are saying, pay attention to how they like to spend their time.

22:55 Okay. So, this goes back a little bit to what I just said about Paul Dolan. So pay attention to the experiences, things, activities that give them a sense of purpose and that give them a sense of pleasure. Yeah. You want to you want to want to know that and you want to work with that in the long term financial plan when helping them identify that they spend, earn and manage money in line with what makes them happy so as to improve their long term financial well-being.

23:20 And the other thing you want to do is you want to listen to the time horizon. I think this is something that is so important. We, as an industry, we are natural, long term thinkers. We find it very plausible to, you know, just sit out market volatility and we understand the effect of compound interest, etc., all those things.

23:38 Many clients find it really hard to be thinking long term. Okay. So you want to pay attention to when they speak about the future. At what point in the future do they refer to? And how meaningful or vague is that connection to the future? If you say something like, once I retire, I just want to have peace of mind, then that's a rather vague vision of your future self.

24:08 If, however, you say, once I retire, I want to live in the outskirts of London with easy train links into the West End so I can watch theatre shows, etc., you know, then that's a rather concrete vision of retirement. So. So that's what you want to listen to. How concrete or vague is that connection to the future self right now?

24:19 Let's look into some questions that I think are good questions to ask when you're meeting a prospect. So here we are at someone you haven't met before who's interested in taking up your advice. And as I said, there's much more to this. But, I just focus here on the on the questions you can ask. Not so much in, you know, the mind space you've got to be in and the mind space that the client is in at that stage.

24:45 And, you create trust. And you know what? You know what makes a good question? Those things. I'm not highlighting this so much here. I'm just going straight into the questions, and the other elements that are being covered in other educational material also here on this CPD hub. But here's the first question. What brought you in today, which I think is a much better question than asking, how can I help?

25:10 The reason for that is think about it. Your financial advisor, if you are asking how can I help? The client will go, well, yeah, I am sitting with a financial advisor. What else can I be talking about then? Financials and money and wealth related stuff. Yeah. If, however you're asking what brought you in today, then you are opening up the floor and you're inviting loads of different data points can be emotional, it can be social, it can be utilitarian.

25:40 There's different ways. But you leave it to the client or the prospective client to say, well, you know what they want to offer. And I think you will gather much richer information on where they are in their mind and how you can help. Second question is why now? So again, this is one that comes from making a large set shaping wealth.

26:01 And I think it is a great question to ask because the very fact is, you know, you are sitting in that situation here and now you're not sitting there a month ago, you're not sitting there six months ago, but a year ago. You're sitting there now and you're also not sitting there. And in a month's time or in six months time.

26:17 So the question is why? Why is that? Has there been a trigger? Has something been building up? What? So again, you know, I think it is a question that will allow you to, built, to, to gather information, that you will find useful when crafting a financial plan. Subsequently, I'll skip the last question in the interest of time.

26:39 But again, as I say on the CPD hub, to help you find more, information on, the, the different questions to ask. Okay. The second question or the second, this the second material here, for  questions you can ask in a client advisor encounter is, as I said before, for long term clients. Right. So for long term clients, I don't know, perhaps ten, 15 years or so, but you perhaps seek to revive the relationship a little bit.

27:07 And this is what we call the hopes and fears approach. Right. So the hopes and fears approach, what it does is it, invites the client to meaningfully connect to their future self in a methodological and, systematic way with principles out of coaching psychology. So the it is going back to a 100 year life thinking. No, the fact that we are we are living longer, healthier lives.

27:30 What do you do in the first part is you in this example, someone is 45 years old. You ask them, what are you glad you did? Okay, it can be anything, but they can reflect back. What are they glad they did. Second question you ask is, well, now let's go out 15 years, okay. And you're now 60 and you look back.

27:50 And what will you be glad you did? Okay. I mean, you can try that on yourself, but it instils, you know, activation in a part of the brain that we are not typically engaging a lot. So this is this is the mind space you want to create before you come to the second part of that meeting. That's really the core part.

28:09 Very briefly, this connects to our second 50 research, which essentially says that for a successful long life you need money. It's an important ingredient, but you need much more than money alone. And the other components, that you need for long term success are here on this page. So there's work or purpose, you know, that's family. There's health as well being those components.

28:32 So they are important and they inform that second set of questions. But essentially you are asking what are your hopes and fears in relation to those aspects. Yeah. In relation to health in relation to wealth, family, work, well-being. And again here's an example of what that may look like in practice. The data you perhaps gather as part of conducting that meeting.

28:55 As an example here with health, the client may say something like, well, hopefully I'll still be fit enough to go hiking at weekends. On the flip side, I worry about burning out at work if I keep up these long work hours. Okay, so you see here and also subsequently on the other, components here of the hopes and fears approach, you see how these elements are intrinsically linked to financials and money.

29:20 I mean, as is everything, right? Money is sort of underpinning so much, of so many of the different components that make up a happy life. This is this is why financial well-being really is so important. So but you see here, this is provides you with an opportunity to see whether the financial plan you have built addresses all the points that, you know, all the fears and all the hopes that the client has or whether perhaps the financial plan needs a little adaptation.

29:49 Right? I stop here, I hope I brought to life the notion of human centric advice. What it means, how is perhaps different from a customer centric approach and how it translates to practice. And you follow that link here. You come back to the hub and you see all sorts of other material, including material that is broadly in the base of human centric advice, that hopefully helps you to facilitate a better and meaningful type of financial advice with your clients.

30:20 Thank you for listening.