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Helping Clients Set Long-Term Financial Goals

Behavioral strategies to help clients stay on target

Morningstar Staff

 

Managing your clients’ financial goals is a key aspect of the advisor-client relationship. But goal-setting is filled with challenges for advisors, who have a vested interest in keeping their clients on target, and their clients, who might not be able to tell the difference between goals they want, goals they need, and goals they can actually achieve.  

Morningstar behavioral economist Sarah Newcomb, Ph.D., author of Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind, has researched the psychology of goal-setting, and explains how advisors can use it to craft realistic, meaningful, and achievable long-term financial goals that benefit advisors and clients alike.   

The psychology of achieving long-term financial goals 

Advisors should start by helping clients achieve a long-term mindset.  

“I do a lot of research into how the way that we think about time affects our financial decisions, and what I’m finding over and over again is that the further that someone thinks ahead, and the clearer their picture of the future is, the better decisions they make financially,” Newcomb said.  

As advisors, you can help guide your clients by turning their financial information into real-life scenarios.  

“What financial advisors need to understand is that for most people, numbers are far too abstract,” Newcomb said. “You need to translate the numbers into a narrative, a story, about what the clients’ lives will look like.” 

Mentally picturing the future isn’t easy, and it can be particularly difficult to envision long-term financial goals when your clients don’t feel like they have any control of their financial future.  

“I asked people which statement they agreed with more: ‘I create my financial destiny,’ or ‘I have very little power in my financial life,’ “Newcomb said. “They had to choose one or the other. Then I looked at what they said they had in retirement savings. The people who believed they create their own financial destiny had about 2.7 times more money in retirement savings than those who didn’t believe that.”  

Focus on what’s achievable 

While empowering your clients is an essential part of goal-setting, it hinges on having goals that both you and your clients believe are achievable. 

“If your clients are struggling in any way or feel powerless in their financial lives, you can draw their attention to the ways in which they do have autonomy and power. You can show these clients how their choices are powerful.”  

As advisors, you can start by helping them focus on one obstacle at a time.  

“Maybe it’s a Friday night spending binge at the mall. Or maybe it’s a pricey dinner every week. Whatever it is, it has to make them say, ‘That’s the thing. I’m overspending in this area, and that’s one obstacle keeping me from really saving enough for retirement that I am willing to overcome.’” 

This blog post is adapted from the white paper “Modern Goals: Behavioral Strategies for Long-Term Success.” 

Read the full paper “Modern Goals: Behavioral Strategies for Long-Term Success”

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