Coaching is also financial (1)

Financial coaching is emerging as a differentiated approach to develop financial skills. It is a process that helps people to define financial goals and implement action plans. Financial coaching is currently developing and facing several challenges, including the lack of evidence in the practice.

The development of financial coaching will provide solutions to confuing situations about what we do when we want to make decisions for our long-term savings. Because we have to avoid disorientation like this:

“Would you tell me, please, which way I ought to go from here?’
`That depends a good deal on where you want to get to,’ said the Cat.
`I don’t much care where–‘ said Alice.
`Then it doesn’t matter which way you go,’ said the Cat.
`–so long as I get somewhere,’ Alice added as an explanation.
`Oh, you’re sure to do that,’ said the Cat, `if you only walk long enough.’”

Talk between the Cheshire cat and Alice in the adventures of Alice in Wonderland.

Financial coaching is deployed in individual sessions with clients in order to train them to meet the financial goals mutually established by the customer and coach.

If “coaching is the art of asking questions to help others, through learning in exploration and discovering new beliefs, that have as a result achieve their goals” according to the European School of Coaching (EEC), then financial coaching is deployed in individual sessions with clients in order to train them to meet the financial goals mutually established by the clients and coach.

Coaching differs from advice, coaches are not “financial experts”, but they motivate and supervise the advice in a process driven largely by the client. Coaching is not designed to be a therapeutic relationship or to handle a crisis. Financial coaching is very suitable for generation asset programs because customers often need of encouragement and support to adhere positive financial behaviors. A coach can provide necessary help for self control along with the flexibility to change strategies as financial situation client is changing. Financial coaching is different from financial advice and focuses more on the progress in behavior change, attention in execution and fixation and monitoring of objectives.

To be smart, well-trained or informed is indifferent, we are not always rational when we have to take investment decisions that should be good for us.

What biases do we have in our behavior when we face a process of financial decisions?   

The main source of problems to which we need to deal in savings processes and investment is ourselves.

Dilip Soman, expert on behavioural economics, talks about our “blind spots” in decision-making when we save or make investments.

There are seven most common errors made by investors.  

To know and to manage them will offer greater chance of success. Although it won´t be exciting! We have collected from this article some of the main biases that have the main effect on the quality of our investment decision-making. To avoid them it is necessary to develop a consistent decision-making process.

  1. No plan. We define our objectives, risks that we are willing to assume, referral, asset classes, etc. To have a plan can achieve more profitability in the long term.
  2. Too Short of a Time Horizon. For example to save for retirement and life expectancy if we are 70, to leave some assets to heirs, etc.
  3. Too Much Attention Given to Financial Media. Financial news may not help you to achieve your goals as a long term investor.
  4. Not rebalancing. Not rebalance your portfolio to the asset allocation as indicated in the long-term investments plan.
  5. Overconfidence in the ability of managers.
  6. Not Enough Indexing. Despite all the evidence in favor of indexing, the manager desire to invest in active is strong, may be because indexing is boring.
  7. Chasing performance. A lot of investment selection is based in recent years on a strong performance. If a given asset class, strategy or fund has had very good performance in the last three or four years, only one thing is clear, we should have invested three or four years ago.

In this post we have wanted to describe the need to provide support to savers so they can make their best decisions and take advantages of them.

In the next article we will discuss:

  • Different investor personalities from several authors.
  • Adding value from behavior coaching.
  • At the end, part of the solution, is financial coaching.
  • Are the robot advisors going to provide help in our financial decisions?