FAs Urged to Focus on Client Wellness, Not Wealth
The financial advice industry focuses far too much on making clients wealthier, but what advisors really need to do is help clients have a healthy relationship with money, a Morningstar behavioral economist tells Financial Advisor magazine.
Almost every advisor has a client who’s anxious about money regardless of their wealth, Sarah Newcomb tells the publication. This fact underpins what Newcomb considers a major flaw in financial advice: the idea that more is always better. But while there is some correlation between rising wealth and life satisfaction, other factors contribute to peace of mind far more, she tells the publication.
Newcomb has found a much tighter correlation between time horizons and satisfaction, reports Financial Advisor. In a study of 500 people, she found that people who think 10 years or more ahead tend to also save more, regardless of income levels. The effect of the time horizon on savings is almost twice as strong as income, she tells Financial Advisor magazine.
In addition to time horizons, what affects emotional well-being the most is what Newcomb calls the “locus of financial control.” She found that people who feel like they are in charge of their financial destiny — regardless of whether they’re earning six figures or $25,000 a year — are emotionally better off than those who feel like they have no control, Financial Advisor magazine writes.
And it should be the goal of the financial advisor to help clients achieve that state of well-being, she tells the publication. In some cases, that may require some rewiring to convince a client that they do have control over their financial future, Newcomb says.