Causality dilemma, better known as the chicken or egg paradox, characterises situations where it is difficult to determine what came first. I read an interesting article on the difference between advice and coaching which got me thinking. So, which comes first, advice or coaching?

Let’s start with a couple of simplified definitions as a frame of reference.

  • Advice – involves taking account of individual or specific circumstances leading to a recommended set of decisions, products, services, and actions.
  • Coaching – providing guidance and information to help people intellectually and emotionally navigate the opportunities and choices they face when planning for the future.

My thought would be that coaching comes first here’s why, but feel free to disagree. As a father, I went straight to advice mode. The “here’s what you need to do” monologue. As the kids grew I realised that was a flawed approach. Their response was usually, “Dad I really didn’t need to know that much about it.” I realised coaching worked far better. I began asking them questions, finding out how they felt about things and where they were worried or not sure about something.

Two positives emerged. I began having great conversations with our kids. They opened up discussions and had strong reasoned convictions I hadn’t been aware of. Outcomes improved as did our relationship. The parent-child relationship became a coach-student arrangement.

Our initial client meetings open up a wide-ranging conversation. Most clients will have an idea of what they want to do, but want more help around how to make it happen. It often has questions such as, “Can I afford to retire?” or, “How do I make sure I don’t run out of money?” Many don’t feel properly equipped to do this for themselves. Very wise in our view. This is not easy. It is complicated and everyone’s circumstances are unique.

Our initial discussion helps define the purpose behind the plan, and exactly what the client would like to achieve. This lets us provide information and guidance as to how they could best approach the decisions they will face. Taking time to explain each option and how to make the best of them helps people grow their understanding and builds their confidence when it comes to making important financial decisions.

Once we have discussed the subject and focussed more by personalising the details, we shift into advice mode where specific actions, products and services are identified and recommended. By this point our clients will have a better understanding of why, what and how the advice we provide will help them achieve their goals and ambitions for the future.

Our annual planning meetings are in effect ongoing coaching sessions. They allow us to talk through and measure the progress made toward the client’s original plan. We revisit their cashflow model and re-run any changes under consideration. It also allows us to discuss any potential impacts from recent changes in legislation, taxation or regulation that may affect their outcome, and provide a range of options for them to consider.

One key area where coaching comes into its own is recognising an individual’s behavioural investment traits and biases. Behavioural coaching is a key part of building financial resilience. Market movements are unpredictable. Trying to second guess the markets is impossible and likely to prove expensive. We prefer to prepare rather than predict what may happen.

There can, on occasion, be significant turbulence which can unsettle unprepared investors. We saw exactly that after the disastrous mini budget announcements in 2022. We stress the necessity for clients to keep disciplined and look to the long term. Building financial resilience is vital to ensure everyone sticks to the plan. The short-term volatility can be unnerving, but making emotional choices often proves to be financially damaging. Staying disciplined, staying focussed on the long-term brings the best results.

We also explore any changes in circumstances that require us to revisit the original financial plan. If we go on to discuss a new topic, for example a client currently withdrawing income from their assets and now wants to consider gifts to family, we revert back to advising. The specifics of their situation are talked through, product and service options are recommended, discussed, and a plan of action drawn together.

Many decisions we make are seen as financial, buying a house for example. But in essence they are emotional decisions. There has to be an emotional connection with any major purchasing decisions. Investing is no different. It may seem like a number on a piece of paper, but if anything happens to our investment value it can affect us in a number of ways.

If the value falls, we can feel financially vulnerable, anxious, even worried about our financial capacity to carry out our plans. If it falls very sharply, it can cause panic, leading some to sell up to avoid further losses. Our financial fight or flight response if you like. Blame biology.

We all have two small, almond shaped glands called the amygdala and they are responsible for literally pushing our emotional buttons. They play a pivotal role in memory management, helping to encode memories, especially of the more emotional events. It seems the amygdala in the right hemisphere tags autobiographical memories in such a way that they are better remembered. It also manages negative motions; fear, anxiety and worry, whereas the left amygdala can deal with both negative and positive emotions. This imbalance may be the reason that we react up to three times more to failure than to success.

Recognising the potential influence our emotional responses can have is an important factor in financial coaching. As Laura Ann Moore, founder of Mind Money Soul said, “There is always emotion attached to money”. She argues that “If you are starting out and have not done anything yet with your money and are worried to take risk, coaching is for you.”

Financial coaching can also help people overcome individual struggles with money discipline. Areas such as overenthusiastic credit card use, inconsistent budgeting, and, sticking to a financial plan. We hope our ability to recognise which comes first, coaching or advice, allows each individual to feel informed, confident and supported. This, for us, is the hallmark of a successful, enjoyable and profitable financial planning experience.