You don’t hear the term ‘coach’ tossed around much in the finance world. If you do it usually refers to some sort of business coach, a coach for the professionals. In the normal world, financial professionals are typically called financial planners or financial advisors, not coaches. But here’s why I like to call myself a coach:
A financial planner/advisor is someone who provides some sort of product or service (or both) in return for a fee, which is effectively sales. Some of them are fiduciaries (meaning they’re obligated to put the client’s best interest first), some are simply looking for suitability (whether or not a certain product could be considered suitable for a customer, not what would be best for the customer). Many of them mean well, but they fall short in one key area, they don’t ensure the success of their clients. The job is to provide a product (financial plan, insurance product) or service (investment advice, meetings) which may help (or hinder) investors to varying degrees, but it’s not to provide an outcome.
Dalbar’s (an investor research company) Quantitative Analysis of Investor Behavior study shows that average investors underperform the market year after year. Morningstar’s annual Mind the Gap report shows that investors even underperform the funds that they’re invested in (largely because of active movement and bad timing) year after year. The worst part is that most of these investors are working with planners and advisors. So what gives? One of the biggest components of the problem is that the professionals helping clients are salespeople, not coaches.
There are two opposing ways to define the customer/financial professional relationship: cater or care. Most financial professionals cater to customers. If the customer wants a certain product, the professional is ready to fill out the paperwork. If the customer wants to shift investing strategies, the professional is ready with three other options. What’s best for the customer in these scenarios is effectively irrelevant. Professionals end up filling orders (catering) instead of coaching and educating clients on options that fit best with their goals (caring). Add in the commission trap problem and it’s almost impossible for many financial professionals to truly care for clients. Instead of investing in the success of the client, they’re focused on keeping their business alive.
In contrast to this, a financial coach is interested in one thing: helping people achieve their goals (caring). The relationship is not driven by products or sales but by a partnership working towards an outcome. The whole orientation is different. Where a typical financial professional is looking for ways to fit products onto perceived problems, kind of like trying to plug holes, a coach is looking toward the long term success of a client and working with them, year by year, to achieve that success. Ensuring the success of a client includes many things, including financial products and services, but the key ingredients are educating and coaching. Educating so that clients know how and why they’re invested the way they are. Coaching so that clients are empowered to stay the course. Things get scary, pitfalls abound, it’s probably going to be a long journey, a coach walks alongside to ensure your success.