The services financial professionals offer to clients have evolved over the past few decades. Today, investment and retirement planning are generally considered table stakes as more clients seek – and have even come to expect – guidance that is more qualitative and personalized in nature.

One of the intangible services that has gained prominence is the psychology of financial planning, which the CPF Board defines as: “Identifying and responding to attitudes, behaviors, and situations that impact decision-making, the client-planner relationship, and the client’s well-being.”

While many advisors understand common investor emotional biases and cognitive errors, fewer may have been trained on how and when to execute appropriate intervention strategies. And as new research reveals, that lack of training and expertise may be costing them referrals.

The research: Linking advisors’ services to frequency of referrals

Using data collected by the Certified Financial Planner Board’s annual Client Impact Study, we investigated the relationship between the services offered by financial advisors and a client’s frequency of making referrals. While the 2024 wave of the CFP Board’s study consisted of 4,028 respondents, our research only included those respondents who reported having a financial advisor and investable assets of $250,000 or greater, resulting in a final sample of 938 respondents.

The dependent variable used in the research was respondents’ answers to the question: “How well does the following statement describe the conversations you have with your financial professional? ‘I have referred other people to them.’” Choices included “not at all”, “somewhat”, and “a lot”.

As a variable of interest, we included responses to a question asking participants to identify whether they currently received services in the following areas: estate planning, investment planning, psychology of financial planning, retirement planning, risk management and insurance planning, and tax planning.

Several control variables, including satisfaction with the financial advisor and length of the relationship between the client and advisor, were also included in the analysis to help isolate the relationship between services received and frequency of referrals.

Analysis

To investigate the potential presence of a relationship between various financial planning services and frequency of referrals, a multinomial logistic regression model was used to account for the multiple categories of dependent variables. In this case, the categories were a lot of referrals, some referrals, and no referrals. A statistically significant relationship was considered present when the p-value was less than 0.05.

Results

The key finding was the importance of advisors providing services related to the psychology of financial planning. Among the services investigated, psychology of financial planning was strongly associated with a higher frequency of referrals. In fact, only this service was linked to “a lot” of referrals. Evidence was also found that supported a connection with estate planning and retirement planning, while no relationship was found with investment planning, risk management and insurance planning, and tax planning.

Next steps for advisors

Given the strong connection between addressing the psychology of financial planning and referability uncovered in this study – as well as the importance of referrals to a firm’s growth prospects – advisors may want to consider how they can implement this service or enhance what they’re already offering.

Here are a few ideas to get started:

• Pursue an online or in-person course. Given the growing focus on investor psychology, educational opportunities on the topic abound. Many of these offerings go beyond the basics and provide actionable implementation ideas and strategies focused on how advisors can help clients manage their emotions and make better decisions.
• Follow subject matter experts. Connecting with subject matter experts on LinkedIn and other social media outlets can help advisors stay current on new research and other key developments in this growing field. Following a diverse group of experts that includes both practitioners and academic experts can be valuable in providing a broad perspective.
• Educate clients. Hosting a client appreciation event, whether in person or virtually, around the psychology of financial planning is an easy way for advisors to demonstrate their expertise on this topic. Enlisting trusted outside partners as speakers can make the topic engaging and memorable.
• Take time to self-reflect. According to the CFP Board, “Financial planners’ own history, biases, and values must be recognized and sometimes subsumed in service to the client.” In other words, having a greater understanding of one’s own relationship with money may help keep these personal feelings in check when providing clients advice.
• Take note of client tendencies. Financial professions routinely take notice of clients’ hobbies, interests, charitable activities, and family dynamics. They should expand these observations to include certain psychological tendencies, such as feelings of financial anxiety, procrastination around executing agreed-upon decisions, and excessive pessimism or optimism regarding financial markets. Recognizing these tendencies may help facilitate discussions and lead to stronger, more productive relationships with clients.

Referrals are a key contributor to organic growth for many advisors. Not only do they provide a pipeline of new business opportunities, but they also reflect a client’s feelings of satisfaction, trust, and loyalty – an important form of affirmation and source of motivation. That’s why it’s crucial to consider what types of services may make clients more likely to refer their advisor to family and friends.

Tangible services like investment, retirement, and tax planning will always be core to advisors’ advice offering, but the psychological aspects of financial planning should not be ignored. And as our research shows, clients who receive guidance on managing their emotional tendencies and biases around money are more satisfied and therefore refer their advisor to others more frequently.

For financial professionals seeking to strengthen existing client relationships and generate more referrals, adopting a new – or increased – focus on investor psychology may prove a rewarding path, for advisors and clients alike.

This piece is written by Matt Sommer, PhD, CFP, CFA  Matt Sommer is a Managing Director, Head of Specialist Consulting Group at Janus Henderson Investors (JHI). His team consists of various subject matter experts across several disciplines including retirement planning, wealth advisory, practice management, and investment strategies. JHI is a strategic partner of Pacific Financial Group but are otherwise unaffiliated with TPFG. 

Disclosures 

Commentary offered in this blog is for informational and educational purposes only. Opinions and forecasts regarding markets, securities, products, portfolios, or holdings are given as of the date provided and are subject to change at any time. No offer to sell, solicitation, or recommendation of any security or investment product is intended. Any expressions or opinions reflect the views of the author and are not necessarily those of TPFG or its affiliates. TPFG does not provide tax or legal advice. Investors should consult their financial, tax or legal professionals before investing. Past performance is not a guarantee of future results. Certain information and data may be supplied by unaffiliated third parties as sourced. Although the author believes the information is reliable, we cannot warrant the accuracy, timeliness or suitability of the information or materials offered by third party sources. TPFG is not affiliated with Janus Henderson.

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