A new field of study that every advisor must imbibe


Rakesh is a 35 year old successful senior executive in a large company, earns well, saves a lot, has a promising career ahead of him. All the data in front of you as his advisor tells you that he has great risk capacity and should be investing substantially in equity - however, he simply refuses to do so, irrespective of every piece of data you throw at him. He is firmly rooted in fixed income and won't budge.

28 year old Mahesh got married last year, but finds it difficult to get out of his free-spending, credit card financing ways of his bachelor days. He continues to tot-up dues on all the 3 cards he owns, and finds it difficult to let go of his impulsive shopping ways, despite acknowledging all your advice on the need to start saving and investing. He understands what you are saying, he agrees with the logic, but is unable to commit to starting his first SIP as his card dues always eat up his salary credits, leaving nothing in the bank account.

Suraj has a successful interior design practice, but also spends a lot of time during market hours glued to his laptop, day-trading on all the hot tips of the day broadcast by TV channels. As his advisor, you know that he lands up losing money far more often than making money, you know that he has rarely turned in a financial year with a profit from his trading activities and yet he refuses to let go of his compulsion to trade. He understands your logic of long term investing, he gets your stories about the virtues of patience, but he is simply unable to bring himself to commit to a long term investment strategy, the way you keep advising him to.

Smita and Rahul are by all counts a happily married couple - they are the soul of all parties that your gang throws often. What you find perplexing however is that when you go across to their home to discuss their finances, they rarely sit down together with you for any money talk.Talk about anything else, and they happily join in. Steer the conversation to money, and Smita abruptly gets up and excuses herself from the room. Rahul confides in you that the only disagreements they have are all about money - never anything else. Which explains why Smita chooses to stay away from discussions she knows will turn scrappy. You are unable to sit both of them down to jointly plan their financial future - they simply avoid the subject, though they know how important it is to plan - because neither of them wants to invite another conflict around money.

Whatever you learnt in your financial planning course didn't really prepare you to deal with such situations. The books that you diligently read on behavioural finance taught you about irrational and emotional decisions that investors make - but didn't really prepare you to deal with these kinds of situations and offer appropriate counselling to such investors. The common thread that runs across all the four examples we've discussed is about their relationship with money.

Financial advisors globally are recognizing the importance of going beyond financial planning and behavioural finance to truly understand the drivers of their clients' relationship with money - because therein lies the root cause of a lot of behaviour traits that often prevent us from becoming successful in our financial lives. The field of study that delves into this critical aspect that intersects financial planning and psychological therapy, is called financial therapy.


The Financial Therapy Association defines the activity of financial therapy as follows: a financial therapist is focused on enhancing financial well-being through the study of the emotional, behavioral, cognitive, relational, economic, and integrative aspects of financial health. The work brings together financial counseling and planning with personal counseling, marriage and family therapy, sociology, social work, and psychology.

The aim of financial therapy, says Brad Klontz, a psychologist and financial planner, is "to find out what aspects of your upbringing, your money beliefs, or your relationship with money are causing you distress, sabotaging you, or keeping you stuck."

The disconnect between knowing what is right for your finances vs what you are actually doing about it, is what is sought to be "treated" through financial therapy. Rick Kahler, a leading US based financial therapist, compares this disconnect to diet and exercise. Most people know that eating nutritious foods and getting regular exercise is important to their health, yet high obesity rates across the country show that not everyone acts on that knowledge. "It's not a financial literacy problem, it's an emotional problem, and that's where the therapy comes in," Kahler explains. "How do I stop doing something that I really don't want to be doing?"

MasterMind - a joint initiative between Sundaram Mutual and Wealth Forum which aims to help you help your clients master their mind and thus get onto the path to successful investing - is now introducing a new series of content around this exciting field of study called Financial Therapy. In the forthcoming articles of this series, we will endeavour to provide you a basic framework for you to understand what financial therapy is all about and how you can use it to put your clients onto the road to investment success.

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