COVID-19 UPDATE: We're here to help. Click here to find out more.

What is finology and how can it help financial advisers retain their clients?

23 March 2022
3 minute read
Couple with financial adviser

Many financial advisers deal with clients who are embarrassed about money, for example, and, as a result, are reluctant to reveal the true state of their finances. Advising and recommending plans and products in these circumstances is a challenge. How do you know if you have given the most appropriate advice and recommended suitable products if your client is not open and honest? Client’s relationships with money can be complex and affect their financial decisions.  Finology helps us understand these relationships, which in turn can lead to more trust between adviser and client, and more appropriate advice.

What is finology?

Finology is the study of our relationships with money. The term finology is believed to have first been used by Richard Wagner, a certified financial planner who practised for over 30 years. Finology includes how we feel about money, our beliefs about money, how we use money, and what it means in our lives.

Why does finology matter?

Our relationships with money affect our money decisions

Even though money is fundamentally just a means of exchange, we develop a relationship with money and attach emotional and judgemental values to it such as status, success, self-worth and shame. For example, we may confer status on a person based on the price tag of their car. Or we may feel shame when we are in financial distress and cannot pay our accounts and try to hide this ‘bad’ relationship.

Finology recognises that these relationships exist, and that they can materially affect our financial decisions. Knowing more about how relationships with money affect decisions can help advisers help their clients overcome financial biases and make good money decisions.

Compare two clients who are looking to protect their assets and lives with adequate insurance. Client A feels shame about their finances, is worried they will be judged for how they manage money and overstates their disposable income to hide these feelings. Client B is honest about their finances and income.

Client A ends up buying insurance they cannot afford, pays a few months’ premiums and then lapses the policy – losing money in the process. Client A is worse off, and so is the adviser. Client B, however, has affordable premiums based on honest disclosure and commits to paying these premiums, ensuring they achieve their goal of protecting their assets.

The bottom line is that it pays to learn a little more about clients’ money relationships – even if it takes a little extra time.

Top tip: Wagner recognised that finology is not psychology and doesn’t include counselling. Financial advisers and financial planners are not being asked to become experts in psychology or counselling, just to become more aware that financial decisions are affected by money relationships.

Putting finology into practise

It’s impossible to learn everything about every client’s relationship with money, but advisers need to keep finology in mind when advising clients.

The adviser’s end goal is to ensure they understand clients’ individual relationships with money so they can give better advice and suitable product recommendations. This can include asking clients how they spend money, listening to their money stories (how they learned about money and use it in their lives) and emphasising that money is just a means of exchange, not a marker for their self-worth.

Learn more: Finology is a relatively new and understudied field. Financial planning journals have covered the topic, the Portfolio Construction Forum has a finology library, and discussions on What is finology? can give advisers more insight into the topic.

Our role as financial advisors is not just to weave together economics and psychology, but to become “finologists” – those who study finology, and the unique intersections between human beings and their money and apply its principles in practice with our clients.
-Michael Kitces-

A little more time, a more rewarding result

Advisers are in the business of financial advice, which is best achieved when there is trust between adviser and client, honesty, and commitment to meaningful goals. Acknowledging that money relationships play an important role in the advice process will help advisers deliver better service, and clients achieve their goals. It may take some time to work with clients on this, but it builds better relationships, better businesses, and healthier financial outcomes! 

Enter your name and contact number and one of our consultants will call you back:

Please type in your name
Please type in a valid SA number
Call me back