Three aspects for better financial wellbeing

For financial advisers only

The following video is about How does a pension work and has a transcript (see below).

Knowing what gives your clients joy and purpose, helping them picture their future self and working these things into their financial plan we believe will achieve better long-term financial wellbeing and help you have a new kind of discussion around money. Aegon’s Dr Tom Mathar and Chris Budd, founder and Chair of the Initiative for Financial Wellbeing discuss how to help your clients identify these three key aspects.

Three aspects for financial wellbeing – video transcript

Dr Tom Mathar, Aegon UK
Across all the essential money and mindset building blocks for financial wellbeing, we found there was a strong link between better financial wellbeing and knowing what gives us joy and purpose, having a concrete picture of our future self and working these things into financial plan. So I want to look into those three aspects in detail.

So what does joy and purpose actually mean? And how can you find out what gives you a client's joy and purpose?

We were inspired here by the work from Paul Dolan, who was a behavioural scientist at the London School of Economics, who says that happiness really is an equal amount of experiences of pleasure and purpose.

Pleasure is all about the things that make you feel happy and relaxed think like e.g. going out to a sports event or concert, hanging out with friends, going on a holiday, etc.

Experiences of purpose - when you feel useful, feel competent, worthwhile, etc. So the, the point Paul Dolan is making is that it's, you don't want to just experience pleasure, because if you're just experiencing pleasure, but no purpose, you won't be happy. And you don't just want to experience purpose, because then you don't have any pleasure moments and that's not good for your overall happiness either. So it’s really about the even balance of moments and experiences of pleasure and purpose.

Now interestingly, that's the research we did.

We found that only four in 10 people have even considered what gives them joy and purpose in life, and those who are most likely to have done so were those in the pre-retirement segment. So those aged 55 to 64, and incidentally, those who have a financial adviser, but only slightly more likely than those without a financial adviser, to say that they are aware of what makes their life enjoyable and meaningful.

And given the fact that those who are taking financial adviser typically oftentimes in the pre-retirement group, the difference really isn't actually that significant.

So we think that highlights an opportunity for where financial advisers may be able to add a new dimension, namely, to jointly think with clients about what gives them joy and purpose in life. And once that is established, you can have a new kind of discussion around money.

The other aspect that we found to have a strong impact on financial wellbeing is the ability to picture to have to have a concrete picture of the future self. We found the ability to contribute a lot into pensions or long-term savings doesn't just depend on income. It really also depends on one's ability to picture the future concretely and by concrete we mean things like, you know who are they with? Where are they what does their future look and feel like? And this is a part where incidentally, again, those with a financial adviser, were more likely to score better.

So I mentioned 10 points for each of the 10 aspects we asked about where the maximum what's the maximum score. One could have earned those with a financial adviser, scored an average 6.4. So, you know, where 10 means very concrete picture of the future self.

And zero means that they picture the future self. So six points for those, with a financial adviser, those without a financial adviser, just 5.1. So that's a difference of 1.3. That was the biggest difference that we found. But it still, hints at an opportunity for improvement, for advisers to help their clients think even more about where they want to be not only financially, but also socially, locally, physically, etc in 10, 15, 20 years, time to lead a conversation that allows clients to connect more meaningfully to the future. That's really what is so important to connect meaningfully to the future. So ‘very concrete’ the opportunity for advisers here is to listen carefully to how clients speak about the long-term future in the first place.

And when they think about future events, how far ahead do they naturally think and plan, and you as their adviser can encourage them to think in longer terms and invite them to see the future self, for example, by asking them those questions like:

  • Who might you be spending time with once retired?
  • Where may you live?
  • What may you want to do day in and day out?

Chris, again, is that something where you want to add in a little bit from your experience.

Chris Budd, founder and Chair of the Initiative for Financial Wellbeing:
So one of the things that we find when we talk to firms is that advisers very often stopped too soon in this line of questioning.

I, and those that even do it, and I'm going to go a bit bolder than you, Dr. Tom, but there’s a massive opportunity here because most advisers, and when I say most, I mean, almost all, don't talk about this stuff.

Now, lots of people here attending will maybe be saying, well, I ask these sorts of things. But as an example, there was a compliance adviser I spoke to recently who spent three months doing a 100% file checks for a fairly large firm. In that time he looked at the objectives and he said that 100%, every single suitability letter, the objective was something along the lines of “your objective is to transfer your funds in order to beat inflation with your investment.”

Now, that is not an objective. That is an outcome. And so if that's what you ask, any compliance people, any paraplanners, that is the vast majority of the objectives that they get given. So advisers, aren't going deep enough to be able to talk to clients about their future self and financial wellbeing, but even those that do tend to stop too soon, because we see quite a lot of people talking about your objective is to live the life that you want to lead.

But what does that mean?

There's an opportunity there to say, well, what is the life that you want to lead? Or they go into life goals or come back to life goals later. They're not going deep enough to really understand the future self. So there is a massive opportunity here to really get far, far deeper into the client conversation I would suggest.

Dr Tom Mathar, Aegon UK:
Thanks, Chris. Perfect. Moving on to planning.

We saw in our research that across all age groups, the share of those who had thought about how to financially meet their goals was low from around, you know, a third of people in most age groups. But worrying like 28% of those age 35 to 44 and 26% of those in age 45 to 54.

And what was even more worrying was the lack of a written down plan. The highest share was 34% in the age of 55 to 64, where arguably you would expect a larger percentage of this age group to have a firm plan.

And, there is the importance of visualizing and planning on how to maintain the existing or preferred lifestyle. Have clients got things in place if the unforeseeable happens, that temporarily may derail them.

We think that clever plans do consider those intrinsic motivations that we mentioned that they take into account what brings us joy and purpose now, and how we get into a position where we can achieve those things financially, both now and in the future. And as we've seen, people will have an ability to imagine, or to concretely picture the future self. They are better at working out a long-term financial plan to help them achieve that.