Creating a future plan for clients

Why is goal setting so important when it comes to financial planning?

Knowing where you want to go in life, the milestones you want to reach, how you want to feel and what you want to achieve in the future are important drivers to how we live our day-to-day lives. But the current pace of change is causing us all to question what’s most important to us and this impacts how we feel about the future. Here we explore the importance of goal setting, what stops us and the importance of who we share those goals with.

The psychology of financial behaviour

Our industry is founded on providing our customers and communities with options for the future to help them progress and fulfil their potential. We have an increasing appreciation for learning how people behave to help us understand how to better help and support them. There is a genuine opportunity to explore the relationship between how our emotions and financial planning collide.

For example, we know that some of us may be influenced by an optimism bias when planning for the future, and what’s interesting is how this connects with our financial behaviours. How do the two react together? If we are overly optimistic about the future, we might not think we need to make long-term plans because we believe that everything will work out. Does this mean that we’re doing enough to have the finances in place to build the futures we dream of? Are we taking the right steps towards making it happen?

The other thing to consider is the range of emotions that financial planning and goal setting can evoke in clients. For most of us, it might feel more natural to share our goals with friends and family instead of a financial adviser. This could be due to a combination of embarrassment and lack of trust. That’s why we want to explore how, as an industry, we can overcome these barriers so clients receive the best information and advice. We asked Dr Simon Moore, Behavioural Psychologist at We are IB*, to share his insights into future goal setting and what this means for clients.

How advisers can help clients stay on track with their goals

Defining medium versus long-term goals with your clients is a conversation which could unlock huge opportunities. In the medium term, being more financially capable and confident or reducing worrying about money could be a significant outcome. Focusing on a shorter timeframe often enables us to develop the strength we need to work towards longer-term goals. If we are able to manage our cognitive load (all the things we have to think about at any given moment) in the medium term, long-term goals feel within easier reach.

Extremely long-term goals run the risk of getting derailed. They require more cognitive effort, self-control and hard work. We know from psychological research that long-term goals are often harder to achieve as we have to wait for a long period of time in order to receive a reward. However, they can be achieved by overcoming winding paths and significant barriers in the form of shifting working patterns, life milestones, and changes to health and behaviour.

It is also easy for people to get dispirited by negative feedback and drift back into shorter-term habits. While nobody can mitigate unforeseen challenges, advisers can carefully structure feedback and create a roadmap to ensure that there is a plan to help clients stay on track. Barriers to future thinking include fear, greed, living in the now, and a lack of knowledge. However, optimism is one of the most significant barriers, not only to future planning but also to taking the step to contact a financial adviser in the first place.

Dr Simon Moore’s key takeaway

Creating a safe environment for an ongoing dialogue is an important framework within which to discuss shifting perspectives over time. Goals shift as we age, demonstrating evolving priorities and the continuing impact of milestones we have already reached. Life keeps evolving, but anchoring conversations with questions which consider cognitive behaviour and encourage clients to safely evaluate their financial behaviour is central to moving towards a more holistic role.

*We’ve partnered with We are IB, leading experts in behavioural psychology, to understand how clients think and the barriers this might cause when it comes to thinking about the future.