Once I have an understanding of who a person was when they were young, I ask them to imagine that if they could do anything, what would their life look like?

- Sandra Cho, Pointwealth Capital Management

A focus on financial psychology

According to a Financial Advisor IQ article, more than 60 colleges and universities offer degrees in financial planning, many focusing on financial psychology and behavioral economics.

“We have the amygdala in our brain, which is like that fear response, and like now with a bad market, sometimes people's fear response takes over their rational brain,” Linda Lepe, University of Wisconsin-Madison.

LPL Advisor Profile

Sandra Cho

Being a great advisor may start with understanding a client’s past

Oftentimes, client financial goals are focused on future life events:

  • A career change
  • A newborn’s college education
  • Retirement

It’s understandable, then, that financial advisors and wealth management programs within financial institutions and other enterprises create client strategies for those milestones down the road. But there’s also evidence that financial advisors should look to a client’s past to have a better understanding of what influences a client’s attitude toward money.

Research like the Harter and Harter study published by the Library of Medicine connects how financial hardships someone may experience in childhood, as well as how parents dealt with finances, influences future habits and beliefs about money—and risk tolerance for investing. Understanding the financial psychology of a client can be a useful tool for how financial advisors develop investment strategies and communicate with clients. You can start with questions like:

  • What was your financial situation growing up?
  • Did your parents complain about finances?
  • Did your parents discuss finances with you?
  • What did you learn about money from the person who raised you?
  • What defines “wealthy” to you and how do you think wealth is achieved?

With more insight into a client’s past experience with money, you can better understand how you can help them with their future financial goals.

Understanding the investor perspective

Before she moves forward helping with a client’s future financial goals, Sandra Cho of Pointwealth Capital Management explores a client’s past. “Helping clients invest isn’t just about doing what you think is right, but helping the client stay invested by knowing what they can handle,” she says. “If a client is going to lose sleep at night when the market wavers, then their money isn’t providing the confidence and reassurance that it should. To get our clients closer to their financial dreams, it’s important to understand who they are as an investor. It’s our job as investment professionals to glean insight from their investment experiences so we can best help them on their journey to a successful financial future.”

When first meeting with a client, Cho prioritizes getting to know the person rather than their financial goals. “I concentrate on finding out who they are, where they came from, and who they are as an investor,” she says. “If you grew up poor, your idea of rich may be different than someone who was raised with a silver spoon in their mouth. It’s all about perspective. I start by asking them to imagine that they are five years old again and what their life was like. What were their first experiences with money? What was a negative experience with money and how did they respond at the time? What was a positive experience with money? Did they learn anything from these experiences that they carry with them? These windows into their past help me understand their perspective.”

Those conversations and insights better prepare Cho for personalizing a strategy that will engage clients within their comfort level: 

Once I have an understanding of who a person was when they were young, I ask them to imagine that if they could do anything, what would their life look like? Those two questions tell me where a person has come from and what a person’s ideals are when they are free to imagine life without constraints. I work with them until we can mold some realistic goals for the future. Once you understand where a client came from, you can empower them to write their financial history. They can set themselves free from the negative tethers of the past and keep the positive things they’ve learned from their parents or financial role models. From there, I finally get to my favorite question, ‘Now tell me where you are 10 years from now?’ Together we get to walk there.”

LPL Research is your differentiator

The LPL Research team believes financial professionals can find incredible value in considering the financial backgrounds of clients.

“Childhood experiences indeed shape spending and investment patterns in adulthood,” says LPL Financial’s Chief Economist, Dr. Jeffrey Roach. “We see this most pronounced with those who grew up in a low-income family with hard-working parents. There is a sense that those individuals have a deep respect for working hard and protecting their hard-earned money.” Roach adds that generational spending patterns are quite complex. “And while life experiences clearly affect financial decisions between spending versus savings, income level does not necessarily determine your propensities.”

Roach also stresses that children are a powerful influence on a parent’s investment decisions:

Parents tend to have a greater focus on the future and are more inclined to limit current consumption for savings. For financial advisors who wish to learn more about the behavioral aspect of saving and investing, I suggest exploring the work done at many of the top universities in the U.S. Of course, LPL Research is available to help you in this journey to better support your clients.”

Understanding the “why” behind a client’s approach to money is good insight for creating their investment strategies. But when those strategies are negatively impacted by fluctuating markets, you may need help explaining the situation, especially for clients who came from families that struggled financially. That’s where the LPL Research team can help.

"Every day matters.”
“Nothing stays the same forever.”

Dr. Quincy Krosby, chief global strategist with LPL Research, believes these two views can help financial professionals when clients react to market volatility:

“When markets turn, it is understandable that clients react with fear. Clients are vulnerable. Those close to retirement may fear that they don’t have time to make up the loss. Fear of the unknown is scary. But over the years, we’ve gotten through every downturn and LPL Research can show you how. In what I call ‘kitchen table English,’ we can offer research about the duration of bear markets and provide the data that ‘it’s not different this time.’ That kind of easy-to-read information can go a long way to helping clients–no matter their background with money in the past–understand the greater context with what is happening with their money now, and what should happen with their money in the future.”

Deliver market context from LPL Research

Krosby and Roach remind financial advisors that LPL Research is here to help. “Not only are we perfectly happy to put together information for financial advisors to share with clients, but we can also lead webinars for your clients. We can give real-world examples and answer questions. These kinds of dialogs can help boost your brand and further demonstrate your value,” Krosby said.


Pointwealth Capital Management and LPL Financial are separate entities.

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