The Three Time Zones of Financial Planning

Douglas Conant, the former CEO of Campbell Soup and Nabisco Foods, wrote that leaders need to become “time travelers.” He explains that “Everything we do is informed by the past and affects the present and future. To improve our decision making we have to be able to transport ourselves to the past, present, and future simultaneously.” ¹

What does this mean in practice? It means taking a clear-eyed view of the past to understand how it became the present. From there, you can perform an assessment of the present situation to make sure you understand where you are now. Following this process leads to more-informed decisions about achieving a desired outcome in the future. This model can be very effective. It not only works for leaders, but it can also help financial planning clients and their advisors make better decisions.

During the holiday season, many people revisit the classic story, A Christmas Carol, based on the novella written by Charles Dickens in 1834. As you may know, set on Christmas Eve, A Christmas Carol tells the story of a miserly man, Ebenezer Scrooge, who is told by the ghost of his former business partner that he will be visited by three ghosts that night; the Ghosts of Christmas Past, Present and Yet to Come. The three ghosts give him a vision of his past, present, and future lives that shows Scrooge how he came to be, how his actions have affected other people, and what will happen to him if he doesn’t change.

Spoiler Alert: It worked for Scrooge. Transformed by the experience, he changed his life for the better. You may be asking, how does this classic tale of morality in the holiday season apply to financial planning? For financial planners, understanding the past may be a new area to explore, as up until now, most financial planning has focused on analyzing the present situation and helping the client implement strategies to meet future goals. However, understanding a client’s past is just as important as understanding the present in order to create an actionable plan for their future.

Understanding a Client’s Past

The authors of Facilitating Financial Health, use the comparison with A Christmas Carol to demonstrate the importance of understanding a client’s past in order to implement meaningful change in their current financial situation². As the authors note, although financial planners don’t possess the magical powers of Dicken’s ghosts to show scenes from the client’s past, present, and future, they do bring useful tools to the financial planning process, such as Money Scripts³.

Money Scripts are defined as “the unconscious beliefs people hold around money.” These beliefs are usually formed in childhood and can explain the quirky behaviors clients sometimes exhibit with their finances, often seen in individual fears or habits.

Money Scripts are defined as “the unconscious beliefs people hold around money.” These beliefs are usually formed in childhood and can explain the quirky behaviors clients sometimes exhibit with their finances, often seen in individual fears or habits. They could include positive or negative biases seen in thoughts like “rich people are greedy” or “I want my kids to go on nice vacations because I wasn’t able to when growing up.” Traumatic events that lead to a significant financial impact, including the exorbitant cost of long-term care or the death or disability of a family member, can also shape a client’s personal Money Scripts.

Leveraging strategies from the Psychology of Financial Planning, advisors can learn their client’s Money Scripts by spending more time asking questions, listening and understanding why some clients behave a certain way or hold certain beliefs about their money. This can prove difficult for some planners who have not applied this approach before. Some questions the authors suggest that can help elicit a client’s beliefs around money are:

• “What lessons did you learn from your parents about money?”
• “Looking back, tell me more about a time when things were better, and what made that time different from the way it is now.”
• For a painful memory: “Tell me how your pain around this changed you as a person⁴.”

Looking at how clients form money beliefs can help the planner better understand obstacles to implementing change and develop strategies in partnership with the client to overcome biases that negatively affect their financial health. For example, spending money to signal one’s status or to make up for an impoverished childhood, could lead to excessive spending that does not align with a client’s financial goals. But now is not the time to jump to recommendations, as there is more information — and clues — the planner needs to uncover. With this background, we can now examine the client’s present financial situation.

Understanding a Client’s Present

When the financial planner has a good understanding of the client’s beliefs and attitudes about money, they can now assess their present situation and contextualize it based on this knowledge. This is where quantitative information will shed light on whether the past has caused financial planning concerns in the present. Shortfalls in funding objectives or excessive saving and spending are clues that could be explained by a client’s Money Scripts. It also may invite more questions from the financial planner such as “I see you have a large amount of life insurance, but you are not taking full advantage of your 401(k) plan at work. Can you talk to me a little about that?” A better strategy at this point is to delve deeper into why this situation exists. The client may have already shared that one of their parent’s died prematurely, and they feel strongly about life insurance, but the planner does not want to make any assumptions or recommendations yet. By asking questions and listening, the advisor may gain more insights and allow the client to self-discover how their past may have caused them to overthink their risk of premature death, versus their risk of falling short of their retirement goals.

Talking about the past, present, and as we will see, the future of a client’s financial goals is not a sequential, linear process. A planner’s questions may jump between the present, back to the past and then to the future. The financial planner will ask questions to solicit information, but also to expand on the information received. If the present financial situation, for example, still does not make sense to the planner, they may want to switch back to the past to understand their client’s mindset in taking or not taking certain actions years back. At the same time, certain Money Scripts might indicate beliefs about the future, such as an anticipated inheritance or promotion that may alleviate their present shortfalls.

Eventually, the advisor should have enough background to understand the client’s financial picture. From there they can begin to understand the obstacles their client must overcome to bridge to the future.

Understanding and Creating the Future

Financial planners spend a lot of time gathering data and learning a client’s individual goals and objectives to develop financial planning recommendations that are presented to the client. In many cases, the client is not ready to move forward with many of the recommendations given by a financial advisor. In fact, research indicates that only about 20% of people are ready for change at any given time⁵. So when clients don’t immediately implement advisor recommendations to their financial portfolios, advisors shouldn’t panic and should understand that each person implements change at their own pace. While some clients may be more or less successful at incorporating changes than others, understanding the past and the present of each client helps advisors steer them toward good financial strategies that align with their Money Scripts.

Research indicates that only about 20% of people are ready for change at any given time.

There are many reasons the client may not be ready to make a change. Often it is a symptom of status-quo bias, which causes us to be leery of change due to its uncertainty and risk. Financial planners also need to coach clients to visualize change in a positive way. That means imagining their future in a different way; a future that they have the ability to not just experience, but to create. By using the information learned from the prior meetings with the client, the financial planner will communicate this in a way that considers the client’s past and present situation, their goals, and their financial capabilities. The client, through these conversations, receives a better understanding of their own beliefs about money, and how they may need to change some of those beliefs to live in that desired future.

Becoming a Trusted Change Agent

To be effective, financial planners should strive to become trusted change agents by instilling motivation and hope in clients. Research shows that the combination of a desired outcome, the belief that they can succeed, and a clear action path are critical components in getting clients to where they want to be financially⁶. For financial planners, this means getting comfortable in having conversations with clients in all three time zones: past, present, and future. By understanding the past, and using it to contextualize the present, they can motivate them to act and move toward a better financial future. This will not be easy for some advisors. But through careful learning, practice, and curiosity about a client’s money beliefs, advisors can help them achieve their financial goals in the future.

1. How Your Leadership Influence Extends Across Three Time Zones Forbes, March 12, 2020
2. Facilitating Financial Health: Tools for Financial Planners, Coaches, and Therapists. 2nd edition (2016), pages 13-16.
3. Facilitating Financial Health: Tools for Financial Planners, Coaches, and Therapists. 2nd edition (2016).
4. Facilitating Financial Health, P. 26
5. Advice that Sticks: How to Give Financial Advice that People Will Follow, Moira Somers, PhD, p.246.
6. Take Ownership of Your Future Self, Harvard Business Review, 8/28/2020.

Interested in discussing how CFP Board can support your firm’s certification efforts? Contact CorporateRelations@cfpboard.org.