Financial coaching vs. financial advisory

Financial matters are an important aspect of our lives. Many problems in relationships and obstacles on the journey to financial welfare stem from the psychological side of money. Our financial identity, money-related beliefs, standards and habits can help us achieve a healthy balance in the financial area and attitude towards money, or just the opposite. How can financial coaching help you? How is it different from financial advisory?

Anna Daria Nowicka

Contrary to what you may think, finance-related emotional crises do not happen only to the poor or indebted. Sometimes people who, in objective terms, are not in a particularly bad financial situation or even are well-off, still experience emotional crises in connection with money, which I discussed in my article about Emotional crises caused by finance.

Sometimes the fear of losing even a small chunk of money alone results in a mental breakdown. It happens that people who have lost some money but still have a substantial fortune and are financially secure attempt suicide.

Fights over money (especially spending, making, saving money and risk appetite) are also an issue, and so is the attitude towards financial matters. They are the root cause of many family conflicts, also in wealthy families. I discussed this subject in my article: Financial conflicts in relationships.

Our beliefs about money, destructive habits, comparing ourselves with others and expecting too much of ourselves often cause a great deal of mental suffering and can lead to obviously poor financial choices.

What areas does financial coaching cover?

Financial coaching works with many different aspects, depending on the needs of our Clients and the problems they want to solve. Most often, we handle the following issues during our meetings:

  • Helping the Client understand how their life experience, family background, personality traits and beliefs can either support or hinder a healthy relationship with money, i.e. saving, spending, earning, investing, and so on. If this sounds interesting, you are welcome to read my article about Nine areas of finance management
  • Supporting the Client in reasonable and consistent personal financial planning. 
  • Implementing beliefs, habits and behaviours that facilitate the achievement of financial security and eliminating those doing the opposite.
  • Telling the Client about psychological traps (such as cognitive bias and heuristics) that may have an adverse effect on money, buying and business decisions. 
  •  Helping the Client understand their ‘mental’ financial identity profile and attitude towards money and how these relate to achievement of goals and building a stable financial situation. I wrote about this in my article: Money personality and its impact on life.
  • Helping define healthy financial goals – considering the Client’s core values and the ‘goal ecology’ (in accordance with the science behind coaching, if achieving a goal is harmful to the achiever, the goal is not ecological and it should be reformulated).
  • Supporting motivation and consistency.

Coaching through a financial crisis additionally requires the coach to have crisis coaching knowledge and skills confirmed by a certificate. Owing to that, we can additionally work with the Client to help them handle the emotional crisis and stress caused by their money/financial situation. In the process, we teach the Client how to minimise stress, work with their emotions and mood, and we actively support them in implementing constructive ways of dealing with an emotional crisis. We also share our knowledge (psychoeducation), offer emotional support, listen sympathetically and give feedback.

The role of a Crisis Coach/Financial Mentor in the method promoted by Piotr Łabuz, a psychologist, relies on two main functions:

  • Supporting the Client in a money-related crisis situation (financial crisis coaching),
  • Providing support in setting, planning and achieving of financial goals (financial mental coaching).

When we work with a Client using this method, we place a strong emphasis on the psychology of happiness, well-being and boosting mental energy. We support our Client in developing an approach to money that will not drive them into toxic materialism, workaholism, selfishness, or unnecessary anxiety.

We also analyse whether there are any internal conflicts preventing the Client from achieving their goal. For example: when, on the one hand, a Client wants to maximise their income and work too hard and, on the other hand, they declare that the family is their most important value, or when someone believes (even at the level of unconscious bias) that “money is the source of all evil” and subconsciously acts to sabotage his or her financial objectives. Working together with the Client, we also put together a list of all kinds of supporting resources to help them achieve their financial goals and overcome their problems.

These are only some examples of the areas that can be dealt with by financial coaching.

I would like to emphasise that some psychological issues require working with a psychotherapist or even a psychiatrist and cannot be coached through, such as addictions (including compulsive buying or gambling problems), mental disorders, or clinical depression.

Financial coaching vs. financial advisory

Financial coaching is different from financial advisory or investment advisory! A financial coach is not a licenced investment advisor and cannot even recommend any specific financial products to the Client, such as opening a savings account with a specific bank or taking out a loan in a specific currency.

A coach may only provide basic advice on investment concepts, building a financial cushion, or the psychology of finance, but is not allowed to tell the Client how they should manage their assets or what financial decisions they should make.

An investment advisor, on the other hand, is a regulated profession in Poland, which means that a licence issued by the Polish Financial Supervision Authority is required to legally pursue it. Financial advisors usually work for investment fund management companies, brokerage houses, banks and other financial market institutions. According to Marcin Reszka, investment advisor:

“Unfortunately, people – usually from outside the financial market – tend to confuse this profession with a financial advisor. A financial advisor is not subject to any qualification procedure. A financial advisor does not need any special education, training or exams. Actually, to become one, you only need to call yourself one. An investment advisor is an individual with extensive knowledge confirmed by an examination and a licence. You cannot use this title without a licence (this professional title enjoys legal protection)”.1

According to Businessinsider, “the role of a financial advisor is mainly to help an individual or corporate customer make a good financial decision. Usually they help people achieve financial goals involving loans or choosing life insurance or a pension fund in a safe manner”.2

However, you need to be aware that it is not a regulated profession, so it is more difficult for a potential customer to verify the financial expertise of someone who calls him- or herself a financial advisor.