When people explain why they sought financial advice, they typically engage the practical side of the brain: retirement planning, estate planning, tax strategies and insurance needs. These are undoubtedly valid and important reasons. However beneath this lie deeper, more personal reasons that often go unspoken.
These motivations are tied not just to financial success or security, but to overall wellbeing and quality of life. People seek financial advice to achieve peace of mind in retirement, to smoothly transition into self-employment, to avoid becoming a financial burden to their children, or to ensure that their wealth remains within the family. These are not mere utilitarian objectives; they are driven by deeply personal, emotional, and often unspoken goals.
This realisation casts financial advisers in a new light. They are not just Performance Maximisers, whose sole focus is to increase a client’s wealth. They are, more importantly, Wellbeing Maximisers. Their role is to align financial decisions with what truly brings happiness and fulfilment to their clients, today, tomorrow, and in the long-term future.
Redefining Financial Wellbeing
The cost-of-living crisis, high inflation and market instability have been a source of concern for many. Debt, emergency savings, income, safety nets – are all vital components of financial wellbeing. However this view misses the bigger picture.
Financial Wellbeing isn’t just about the balance in your bank account; it’s equally about the balance in your head. To spend, earn, and manage money in a way that aligns with our happiness, we certainly need money. But how can we align our financial decisions with our happiness without first understanding what makes us happy?
The notion of happiness often faces scepticism; it’s seen as naive or childish. Yet, happiness can be approached in a systematic and methodical manner. For instance, Paul Dolan, a Behavioural Scientist at the London School of Economics often referred to as Professor Happy, argues that happiness is an even balance of pleasure and purpose. This idea seems plausible, yet, surprisingly, few people truly understand what brings them pleasure and purpose. Research from my Centre for Behavioural Research reveals that only one in four people are very aware of what makes their life enjoyable, and merely one in five understand what gives their life meaning.
This lack of awareness is understandable; we often focus on how things appear – like the prestige of being a board member or the allure of holidaying in the Maldives – while neglecting how these experiences feel, including the stress and potential downsides associated with them.
A proficient financial adviser, therefore, is one who strives to understand their clients’ deeper needs. They pay attention to the things, experiences, and activities that render their clients’ lives meaningful and enjoyable. By doing so, they help align financial decisions, not just with financial goals, but with the overall pursuit of a fulfilling life.
Envisioning the future: beyond the present moment
An integral part of the right money-mindset is the capability to envision the needs, wants, and requirements of one’s future self. This involves contemplating questions about what you might want from life in 5, 10, or 15 years. Where will you live? Who will you spend time with? What will your daily activities involve? These are challenging questions; our minds are not accustomed to this level of forward-thinking.
Our research indicates that having a long-term perspective is the single most significant factor contributing to financial success. It’s not wealth, education, income, age, or gender that are the primary determinants, but the ability to form a concrete connection with one’s future self. This connection plays a pivotal role in determining whether one is adequately contributing to retirement plans, has emergency savings, manages debt wisely, or possesses advisable insurance products. Our research further reveals that the highest earners with a strong and meaningful connection to their future self are six times more likely than their counterparts with a weak and vague connection to be saving sufficiently for retirement.
A skilled financial adviser encourages clients to think meaningfully about their future selves and their family’s future. For those in their later years, this means not just considering personal goals but also how their financial decisions affect the wellbeing and opportunities of the next generation.
The Recipe for a Fulfilled Financial Life
An essential element of financial wellbeing is having a robust financial plan. This plan extends beyond simply listing certain monetary figures against different types of assets, contribution rates, or drawdown rates. It also encompasses the purposes for which the money is used, acknowledging that money is but one ingredient in the recipe for a fulfilled life.
Money alone does not equate to a happy life, it’s the combination and the process — how these elements are blended and utilised — that matter. In financial planning, this means integrating money with personal goals, values, and aspirations to create a life that is not only financially secure but also deeply satisfying.
Our Centre’s research indicates that individuals with a financial adviser consistently score higher on Financial Wellbeing metrics compared to those without one. This is partly due to the fiscal advantages — having a financial adviser often correlates with greater wealth accumulation. However, these higher wellbeing scores are also a result of having a comprehensive financial plan that delves into the intrinsic motivations behind financial decisions. This holistic approach to financial planning is what truly differentiates those with higher levels of financial wellbeing.
Lessons from literature – ‘Buddenbrooks’
In the northern reaches of Germany, just beyond my hometown of Hamburg, lies Lübeck, the setting for Thomas Mann’s literary masterpiece of the last century, ‘Buddenbrooks’. Set in the 19th century, this novel intricately portrays the decline of a once affluent family over three generations. The downfall of the Buddenbrooks family is not just a tale of financial ruin; it is a cautionary story that vividly illustrates the consequences of neglecting to integrate personal values, goals, and happiness into financial decisions. The novel poignantly demonstrates how the family’s financial bankruptcy was preceded by numerous personal failings, including a disconnect between their wealth and their personal fulfilment, neglect of meaningful family relationships, and the sacrifice of personal values for financial gain.
Absent in the Buddenbrooks’ saga is the guidance of a financial adviser, a figure who might have steered the family towards considering the long-term intrinsic motivations behind their financial decisions. Thomas Mann’s narrative vividly illustrates the hazards of prioritising wealth accumulation over personal happiness and fulfilment. This myopic focus precipitated not only the family’s financial ruin but also a significant erosion of family unity and individual contentment.
This poignant story from “Buddenbrooks” accentuates the indispensable role of financial advisers in contemporary financial planning. These professionals extend their expertise beyond mere asset management, playing a pivotal role in helping clients intertwine their personal values and long-term life aspirations with their financial strategies. This holistic approach to financial planning ensures that financial prosperity does not just exist in isolation but is interwoven with, and enhances, overall life satisfaction. It prompts a reflection on the broader impact of financial decisions, encouraging a balanced pursuit of wealth that harmonises with life’s deeper goals and joys.
Dr. Thomas Mathar is author of the forthcoming book “The Path to Happiness and Prosperity in a 100-Year Life”. It is available to pre-order now on Amazon UK prior to its release in November 2024
Market Commentary – Quarter 3, 2024