FINANCIAL PLANNING
Facilitating Change to Achieve Goals as AI Changes Financial Planning
By Kristy L. Archuleta
Most financial planners are in the business of helping clients achieve their goals or financial aspirations, whether it’s leaving a legacy for their children, enjoying the freedom to travel, or spending more time with loved ones. Traditionally, financial planners have thought of themselves as technicians, carefully crafting financial plans by crunching numbers and analyzing data to solve complex financial problems for clients to meet these aspirations. However, artificial intelligence (AI) has gained significant attention recently as it looks to replace the technical skills that financial planners have long been using. This raises the question: Will financial planning be replaced by AI?
According to the Bureau of Labor Statistics, financial advisors’ employment is projected to grow by 13% over the next decade. While AI may temper the demand, AI cannot replace the specialized advice that people need and the human connection that naturally comes with the financial planning process. This means that financial planning of the future may look different than it does today. This is one reason the psychology of financial planning has recently surged in importance, raising awareness that clients are more than numbers in a financial plan.
The psychology of financial planning places the client at the center of the financial planning process to address aspects of the human condition. The intent is to empower clients to make behavioral changes. These behavioral changes encompass thoughts, feelings, and actions that have a lasting impact, propelling clients toward their goals and aspirations. The good news is that the convergence of psychology and AI in financial planning can likely create a synergy that offers clients a more comprehensive and effective financial planning experience. The challenge is that financial planners will need to hone their communication and therapeutic skills to help prompt client behavioral change to meet their goals.
Goals are “the object of a person’s ambition or effort; an aim or desired result,” as defined by dictionary.com. Often, financial planning client goals center around achieving financial stability and freedom, which allow clients to pursue passions that reverberate far beyond financial goals. Financial planners can incorporate behavioral change by helping clients alter how they think, feel, or act when it comes to money. For example, financial planners may need to encourage working clients to increase their contributions to their employer-sponsored retirement plan or their high-deductible savings account by altering their current lifestyle and habits. Asking clients to make these types of changes may be easy, but, for the client, these changes may be difficult to implement. This article discusses three key components of facilitating client behavior change—motivation, commitment, and confidence—and how advisors can assess them in the financial planning process.
Motivation
Motivation plays a pivotal role in driving clients toward their goals. Motivation can be intrinsic, stemming from a client’s personal desires and values, or extrinsic, influenced by external factors such as societal expectations or family needs. Financial planners work with clients to identify and nurture their sources of motivation, as they act as the fuel that sustains the journey toward change.
One method to assess a client’s level of motivation for their goals is called a scaling question; this is derived from a solution-focused therapy approach as it applies to financial planning.1 For example, “On a scale from 0 to 10, with 0 representing ‘I am not concerned about these goals’ and 10 being ‘These are the most important things I am facing,’ what number represents where you are currently?”
Higher scores indicate that clients see the goal as a priority, and lower scores indicate that clients may not see the goal as important to them and, therefore, may be less likely to do what they need to do to achieve it. Follow-up questions can be asked about the number the client chooses on the scale. For example, “What number on the scale would tell you that you are motivated to achieve this goal?” Then, “What would you be doing differently than you are now if that number was achieved?” The responses help the financial planner understand the likelihood the client will follow through with their tasks to achieve the goal and give insight into potential stress, anxiety, or knowledge they have around moving toward the goal.
Commitment
Commitment is the bridge that transforms motivation into action. Clients must be dedicated to implementing the necessary changes to achieve their financial goals. Financial planners can assess a client’s commitment to the change process by asking another solution-focused scaling question,2 such as “On a scale from 0 to 10, with 0 representing that you are not willing to do anything different and 10 being you are willing to do whatever it takes, where do you see yourself now?”
Ask follow-up questions similar to those about motivation. As you use this technique, you will learn where the client wants to be on this scale rather than where you expect or want them to be on this scale. This allows the client to self-determine their commitment level and then achieve the goal.
Confidence
Confidence is a key factor in sustaining progress and overcoming setbacks. Clients must believe in their ability to make sound financial decisions and navigate the complexities of their financial journey. A lack of confidence can lead to hesitation and fear of change. Financial planners can assess their clients’ confidence by asking, “On a scale from 0 to 10, with 0 representing that you have no confidence to reach your good enough point and 10 representing that it will be difficult but you will achieve your goal, where do you see your confidence?”3
Responses to this question inform the planner where the client feels they are relative to reaching their goals and what they think it takes to progress toward them. The client’s confidence can be further explored by asking what is their “good enough point” on the scale. Perfection is not the goal, but rather the goal is identifying what the client can do more of or differently to move toward their desired outcomes.
Now is also a good time to ask the client what they have already done to move toward their goals. Even a small task like logging into their IRA accounts to look at the balance is a positive action because they know how to access their account and know the balance. This may seem small to the financial planner but can be quite significant in increasing the client’s confidence and motivation. Compliment clients on these small behavioral steps.
Helping Clients Make Progress
I would be remiss if I did not note that while these three components are required for change, a client must also be ready to take action for change to happen. According to research on change, most clients are not ready to take action even though they are sitting in your office asking for help. They want you to do your part, but they are not always ready to do theirs.
By increasing clients’ motivation, commitment, and confidence, financial planners can inspire clients to recognize the need for change and empower progress toward their financial goals. Financial planners can guide clients effectively through this change process to achieve their goals by tapping into the psychological and behavioral aspects of change, which in turn creates a profound impact on their lives and financial well-being.
1. Archuleta, K. L., Grable, J. E., & Burr, E. A. (2015). “Solution focused financial therapy.” In B. T. Klontz, S. Britt, & K. L., Archuleta (Eds.). Financial therapy: Theory, research, and practice. Springer. deShazer, S., & Dolan, Y. More than miracles: The state of the art of solution-focused brief therapy. Routledge. Klontz, B., Chaffin, C. R., & Klontz, T. (2022). Psychology of Financial Planning: The Practitioner's Guide to Money and Behavior. John Wiley & Sons.
2. Archuleta, K. L., Grable, J. E., & Burr, E. A. (2015). “Solution focused financial therapy.” In B. T. Klontz, S. Britt, & K. L., Archuleta (Eds.). Financial therapy: Theory, research, and practice. Springer.
3. deShazer, S., & Dolan, Y. More than miracles: The state of the art of solution-focused brief therapy. Routledge.
Kristy L. Archuleta, Ph.D., LMFT, CFT-I™, is a professor in the financial planning program at the University of Georgia. She holds the Betsy Barnard Sages Endowed Professorship for Financial Therapy and Financial Planning. She co-founded the Financial Behavior Keynote Group and the Financial Therapy Association.
image credit: istock.com/Ilya Lukichev