Financial planning behavioural coaching

Posted on Nov 28, 2016

What is financial planning behavioural coaching and how is it relevant to financial advice?

If you think behavioural coaching sounds more in the remit of a life coach than your financial adviser, then you’re wrong. Investing is an emotive business, sometimes consciously, but more often than not subconsciously.

Behavioural coaching is an essential part of understanding the role subconscious emotions play in your investing behaviour and not allowing them to derail you from your financial goals.

A look at emotional investing

Emotional investing is natural, instinctive and inherent in most of us when it comes to financial decision making. Unfortunately however, it’s not always logical. It’s rarely supported by evidence and often not in your best financial interests.

So how does it work?

At its most simple, investing can evoke feelings of anxiety, fear or excitement. These in themselves are powerful emotions, the pull of which is often hard to resist. If the markets suddenly fall, it’s not always easy to hold your nerve. But in fact, it’s often the worst time to sell.

However, the influence of our subconscious behaviour is much more far reaching than just raw emotions. Psychological research has shown that as humans we have a number of unconscious cognitive and emotional biases. And these play a significant role in all our decision-making processes.

Unconscious bias

An unconscious bias, is an instinctive and unconscious reaction to something. Your own unique unconscious biases are formed throughout your lifetime as a result of your experiences, background and culture.  They take many forms and it would be impossible to catalogue them all in this journal entry, but they subconsciously influence your behaviour every day, in just some of the following ways:

Seen through the lenses of your investing behaviour, it’s not hard to see how these biases may result in poor financial decisions: using past (and possibly familiar) performance and trends as a prediction of future performance. Not selling when you should (because you’ve held stocks here for generations and they’ve never let you down) or selling in the face of a sensational headline in your regular paper.

The power of behavioural coaching

The role of behavioural coaching when it comes to financial advice is to help you navigate your investments without falling prey to those biases and emotions. At Juno Wealth it’s a key part of what we do and is integral to all our dealings with you:

  1. The starting point

It’s absolutely essential to have a clear financial plan at the outset which identifies your financial goals and objectives. This is something we discuss with you, to make sure your goals are realistic, specific (with a timeframe in place) and measurable. Your financial plan is a bit like your financial anchor; the point you come back to if the waters get choppy. It helps you to focus on the long term, not immediate or short term losses and gains and provides you with confidence that you’re still on track.

  1. Awareness and our investment principles

Despite the increased evidence of the role of emotion in decision making, there’s a general lack of awareness and understanding about it when it comes to finances. Part of our role at Juno Wealth is to make sure you understand the emotional side which is at work and then to act as a counterbalance.

As your advisers we have our own anchor, which are our fundamental investing principles. At Juno Wealth those principles focus on long term, balanced and sensible investing which avoids risk, high costs and short term activity. These support our recommendations behind your investment strategy and act as that counterweight.

Understanding our principles is also often pivotal in explaining why we may be advising a certain course action which may not sit well with your gut instincts. A market crashes for example and you want to sell to avoid further losses. More often than not, the market soon recovers and the best thing to do, is to sit tight and focus on your long term plan. It may seem simple but it’s fundamental to minimising risk as well as managing your anxiety.

  1. Keeping in touch

Part of our role as your behavioural coach is to keep in regular contact with you. It is all too easy to be swayed by sensational press coverage of a doomed economy. We provide a balanced and informed touch point in times of crisis but also in times of calm.

Checking in with your overall plan and making sure you’re still on track builds confidence as does rebalancing your portfolio as and when needed.  Hearing a familiar and trusted voice at the end of the phone can go a long way to overcoming those knee jerk reactions to financial events.

The bigger picture

Behavioural coaching of course is still part of the bigger picture. That bigger picture includes cash flow planning, psychometric testing and evidence investing. It’s knitting these elements together that ensures your finances achieve what you want and need them to. And it’s also what gives you peace of mind and confidence.

Tracey Evans is an accredited and experienced Life Planner as well as a Chartered Financial Planner and Independent Financial Adviser with over 27 years of experience. As such she’s an experienced behavioural coach. In helping you plan your future and the right thing to do with your pension or savings, Juno Wealth combines sophisticated lifetime cash flow planning, psychometric testing, evidence based investing, behavioral coaching and sound, secure, prudent advice.

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