Time for a Referee? What Advisors Should Watch in Financial Coaching

Advisors may want to consider tracking financial coaching for two reasons. First, because coaching may benefit their own clients. Second, because their clients may have been coached, or are currently being coached, and some of the input from those coaches may need to be reframed.

Periodically, we review legislation and regulatory action to assess activity and find. Lately, we’ve noticed a trend. Well, we’ve caught on to an absence of activity that financial advisors may need to be aware of - we’ve yet to see any regulation on financial coaching.

What’s surprising about the lack of regulation on financial coaching is that the field has been growing significantly. In 2020, the Urban Institute noted the growth of financial coaching, noting a growth coaching programs from 40 in 2007 to more than 453 in 2020.[1]  Since 2020, that growth has continued. In fact, some companies are now adding financial coaching to their benefits packages for employees.[2]

Advisors may already have begun to incorporate coaching elements into their work with clients. Some advisors may have traded in their advising practice to only coach clients. The differences between advising and coaching may be confusing to investors, and to an advisor’s potential clients.

Many articles advertising the use and benefit of financial coaches may be muddying the waters as well. For example, Money Under 30 puts a coach’s ability to assist in retirement planning as more of a subject matter limitation, rather than a regulatory or licensing one: “When it comes to investments, financial advisors also have the upper hand. One of the key responsibilities of a financial advisor is to manage a client’s investment portfolio…. Financial coaches, however, aren’t licensed to provide investment advice for their clients, so any tips they recommend will likely be limited and non-specific.”[3] Worse, some websites paint financial advisors as biased. “Unlike financial coaches, who provide advice and coaching, financial advisors are usually affiliated with a certain company or product. While they may charge for advice or planning services, they often make their fees from the sale of financial products.”[4] This kind of writing may be creating confusion for people who need both coach and advisor.

Investment advisor and financial coach Lisa Whitley notes this in her clients. “Many potential clients do not even realize that a more typical financial coach may not be able to offer specific investment guidance.”[5] When it comes to the difference between coaches and others in the financial investing industry, coaches focus only on process, not on outcome. Coaches are also not hired for specific expertise, like consultants would be. “Unlike consulting, where experts basically tell their clients what to do, coaches typically help advisors figure out the best course of action on their own through a series of questions and gentle suggestions.”[6] In other words, “a financial coach can help improve your financial literacy, but they likely cannot give you investment advice.” Most coaches collaborate with their clients on a specific goal, like budgeting or reducing spending. However, some coaches may have received inaccurate training about the limits of their work and whether they can provide investment advice.[7]

Legislative efforts involving changes in definitions and treatment frequently keep financial advisors on their toes. In 2022, federal legislation was introduced that would have expanded the definition of a bank to include investment advisors. Thankfully, that bill never moved out of committee. In that year, a group of states, including California, Connecticut, Hawaii, Illinois, Maryland, New York, and Washington introduced legislation to change tax treatments on stocks, bonds, and artwork. Yet, no such legislation on financial coaching has been moving.

2023 began with an announcement by the SEC of plans to expand regulations concerning client asset safekeeping. “The proposed rules would exercise Commission authority under section 411 of the Dodd-Frank Act by broadening the application of the current investment adviser custody rule beyond client funds and securities to include any client assets in an investment adviser’s possession or when an investment adviser has authority to obtain possession of client assets.”[8]  

To date, there is no clear set of standards for what makes someone a financial coach. Many coaches have a financial planning certification. But a considerable number do not. Some come from social work or other advocacy backgrounds where they understand how to help individuals with behavior change. And not all financial coaches are certified by the same agency. Some are by the National Financial Educator’s Council (NFEC), others by Association for Financial Counseling & Planning Education® (AFCPE®), and other organizations. Some are more stringent than others. For example, NFEC has a broad range of input in its credentialing.[9] AFCPE works with government and NGOs on policy.[10]

Most advisors incorporate financial behavior coaching into their work with clients. This is especially true in times of volatility. “Advisors' real value lies in managing client behavior. Their mission is to keep their clients focused on their goals, even as their short-term objectives may change.” In volatile times, advisors may want to help clients check in with their risk tolerance and risk capacity. In other times, advisors provide educational tools to help clients understand their own values and biases when it comes to prioritizing retirement and managing competing interests like education and retirement savings. From a behavior change aspect, “advisors should be able to understand how these can get in the way of financial success and intervene as a behavioral coach to correct the course.”[11]

Advisors may want to consider tracking financial coaching for two reasons. First, because coaching may benefit their own clients. Financial advisors who take on financial coaching roles may be well positioned to help clients achieve their plans. “Financial advisors who double as behavioral coaches know how to create a financial plan with behavioral bumpers around predictable behaviors that could derail a client.”[12] And second, because their clients may have been coached, or are currently being coached, and some of the input from those coaches may need to be reframed.

[1] https://www.urban.org/urban-wire/financial-coaching-emerges-vital-support-during-pandemic#:~

[2] https://www.cnn.com/2022/02/17/success/financial-coach-workplace-benefit-feseries/index.html

[3] https://www.moneyunder30.com/financial-coach

[4] https://www.betterup.com/blog/financial-coaching

[5] https://wealthtender.com/insights/financial-planning/financial-coach-vs-financial-advisor

[6] https://www.wealthmanagement.com/careers/do-advisors-need-advisors . There are also coaches for financial advisors, who can help with aspects of their business. “For example, one of the most presses problems financial advisors have is business development. They may be very good at the financial planning part of their business but not-so-good at the prospecting and marketing part.” https://www.theadvisorcoach.com/financial-advisor-coaching.html

[7] https://purposefulsp.com/is-financial-coaching-breaking-the-law

[8] https://www.sec.gov/news/press-release/2023-30

[9]Financial Coaching: Standards, Responsibilities, Training | NFEC (financialeducatorscouncil.org)

[10] https://www.afcpe.org/certification

[11] https://www.investopedia.com/financial-advisor/advisors-role-behavioral-coach

[12] https://money.usnews.com/financial-advisors/articles/financial-coaching-what-it-is-and-how-to-become-a-financial-coach

These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

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