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Financial Planning
Thursday, May 1, 2008
Avoiding a case of ‘affluenza’

CEO of acsis Andrew Bradley has taken a critical look at the services offered by financial planners and believes changes are needed in the way they understand their clients and the motives behind their financial decisions. “We need to be a mix of psychologist and financial planner,” he comments. “Gone are the days when you could secure the amount of money you needed to fund the life you wanted by engaging in a haphazard way with brokers and the stock market.”

It is essential for financial planners to understand who their clients are and what their values and goals in life are.
Bradley tells the story of a single mother who had a large property 15km out of town. She worked fulltime and her children were at school in the city. The property was a great investment on paper because there would be a chance of selling to a developer in the future. However, on the negative side she was stressed beyond belief by the commute to work, and had difficulty organising lifting schedules for her children. “And if she had to take time off work to ferry a sick child home from school her stress levels would go off the chart.”
Her friends all tell her she would be mad to sell up because property is one of the best investments one can make. On the other hand she thinks that if she sold the property and bought, or rented, a smaller cheaper home close to her office and her children’s school her quality of life would be greatly improved. So what would a good financial adviser tell her?
Bradley says the financial planner needs to listen to the client and find out as much as he can about her lifestyle and needs, and get her to understand them too. Maybe the best advice is indeed to sell up. “She might end up making less money than she could have if she had held on to the property, but she will have gained happiness and peace of mind.
“It’s really about looking at the person and their unique situation and understanding what’s best for them, not looking at mathematical squiggles and projections and telling someone to follow a financial path that will make them feel trapped and unhappy,” he explains.
This concept is covered in How much is enough?, a practical guide to mental and financial well-being authored by Arun Abey, acsis’ co-founder international strategic adviser, and Andrew Ford. The book confirms Bradley’s view that financial planners need to coach their clients along their financial journeys to achieving lasting well-being.
Abey, the co-founder of ipac securities, a lifestyle financial planning firm based in Australia, uses the book to explain the importance of knowing what you want out of your life before putting together a plan to finance it.
How much is enough? guides readers through a carefully orchestrated process, with real life examples gleaned from Abey’s years of experience as a financial counsellor and adviser, towards understanding how we see money, what money can and cannot do for us, how to invest successfully, and most importantly, how you really will only achieve financial peace of mind and happiness when you have a plan for your life.
We live in a world where advances in medicine and lifestyles mean that we are living far longer than our parent’s generation and so we need to face up to the fact that we might have 30 years of living left after the age at which we expect to retire.
Bradley points out that we need to know how much money we will need to make us happy, and how much would be enough to fund our desired lifestyle.
In order to do this, we need to understand that saving is really just “deferred spending”, so we must unshackle our emotional responses to money. “Develop a plan and stick to it and if you go off track, go back to your financial planner and let him coach you through the process of getting back on track,” he adds.
In the modern world of finance, financial planners should act “like mirrors to their clients”, understanding who they are, what their values are, getting them to plot out their goals and work out a sustainable way in which they can reach them.
“This might mean making certain trade-offs, or if you come into the game later in life , investing more aggressively and in a higher risk market, but you need to know what you are doing and why.”
There are exciting new developments in the field of financial planning and Bradley believes that within six years, we’ll see financial planning and understanding the complexities of our relationships with money becoming an academic discipline in the field of psychology.
Human beings have a complex and complicated relationship with money. We think that if we have tons of it we will automatically be happy, and we’re happy to take financial advice from the random stranger sitting next to us at a dinner party. But Arun Abey points out the error of this thinking in his book. “We think that if we won the lottery we would be happy, but research has shown that lottery winners don’t end up happy. Money is not a short-cut to happiness, but it can play a direct and significant role in providing happiness when it helps us live in a way that is consistent with our personal values and goals.”
The first step towards financial security is finding out what makes you happy. Sound lifestyle financial planning is a subject the author, who graduated with a first class degree in Arts and Economics from the Australian National University, is passionate about. Part of the process of becoming content is about balancing the cost of getting what we want against what we want our lives to be like. Often what we think will make us happy is not the real deal, and we need to understand our motivation before we act. 
Abey uses the example of a man who wants to buy a Porsche. “This man likes driving fast and he can afford to spend a lot of money on a car, so he goes out and buys one. But he lives in a suburban area and he soon discovers that he can’t drive the Porsche at maximum speed; he’s still stuck in the traffic, next to the Toyotas.”
So, how would a good financial planner have helped our speed-loving driver work out if he really wants to invest a huge amount of money in a luxury built-for-speed car? By looking at his motivations, according to Abey, and analysing why he wants the car and how he thinks it will change his life.
“It may well be that the man who thinks he wants a Porsche really wants the chance to drive like a racing driver, and in Australia you can do that by going to a circuit and hiring a car and racing on a track, something you can’t do when you’re driving your kids to school through the morning traffic. If it’s the thrill of the race he wants then he can get that without the massive capital outlay of an expensive car, and then he can put the extra money into a good investment.”
Over the past 15 years there has been an explosion of research into happiness, and valuable links have been made between happiness and economics. It may be no surprise that in 2002 the Nobel Prize for Economics went to Princeton University psychologist Dr Daniel Kahneman for his work in applying psychological insights to economic theory.
For Abey the launch of his book ‘How much is enough?’, is the beginning of a process - and not an end in itself. “The book is a collection of wisdom gathered from years of research, talking to people, and my experiences as a financial consultant, but it’s not meant to be a prescriptive quick fix that offers all the solutions.”
 

Copyright © Insurance Times and Investments® Vol:21.4 1st May, 2008
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