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Voices: Michael Goldman, on Instilling ‘Wealthy Habits’ in Clients

Michael Goldman

Michael Goldman is a financial planner and founder of Portland, Maine-based Wealth Gathering, a financial fitness program that focuses on online financial advice.

Most financial advisers would agree that building wealth is a lot like building health. It’s not a one-time event; it’s the result of practicing “wealthy habits” across a whole lifetime. There are habits clients can develop for the day-to-day financial decisions. The techniques I use to shape these habits are drawn more from social and behavioral sciences than they are from financial training.

One of these techniques involves a focus on motivation. Ultimately people will do things that they’re inspired to do, so when setting goals with clients I start with something attainable, something they really want. Sometimes it’s a splurge, like an iPad or a car, but by using something that’s meaningful you help get them in the habit of making choices and saving towards something bigger and more important, such as retirement.

Saving toward that big thing can be hard for people, because it’s vague, far away and they don’t get much immediate gratification. So the adviser has to make saving something that’s positive and incremental. Usually when I talk about retirement savings, I talk about it in terms of degrees of freedom, where one degree is defined as enough money in the bank to cover one month’s expenses in retirement. If you define things in terms of freedom, it becomes much more inspiring and allows people to think flexibly about retirement.

For some advisers these techniques are already familiar, particularly for planners using a fee-only model or those in the Life Planning movement. They’re already thinking in terms of being coaches. But for those that are used to focusing strictly on the numbers, it can be difficult to make the shift. It can be hard to say, “Well maybe I should be advising somebody this way because it’s more likely to engage their motivation as a human being,” versus advising them from a strictly financial point of view.

The benefits of developing wealthy habits are huge. Financial advisers consistently make the argument that if you work with them you’re going to make more money in the market. However, those performance-based metrics are only setting advisers up for failure every time the market drops or another adviser makes a better pitch.

If you shift the argument to one where you help the client build wealthy habits to keep them from making mistakes, it shows you will help them personally perform better, which builds a strong relationship with the client. The typical investor loses around 5% of their return by making simple errors in judgment, so if you’re working with an adviser who helps you build good habits to avoid those behavioral pitfalls, that’s a 5% increase in your return right there.

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