Why is critical thinking so important when giving financial planning advice to clients? Let’s explore this question and show how it can improve client outcomes.
When financial planning for client, critical thinking is essential because the stakes are incredibly high. Clients rely on their financial planners for sound advice that can affect their financial security, retirement plans, and even generational wealth. Without critical thinking, planners may make decisions based on incomplete information, personal biases, or emotional responses, which could have serious consequences for their clients.
Here are several key reasons answering today's question – Why is critical thinking so important when giving financial planning advice to clients?
1. Tailored Advice:
2. Evaluating Evidence:
3. Problem Solving:
4. Recognising and Mitigating Biases:
5. Mitigating Risk:
Top Five Things We Can Do to Get Our Critical Thinking Brain Working Better
Improving critical thinking skills takes practice and intentionality. Here are five strategies that can help you sharpen your critical thinking abilities:
1. Ask More Questions: One of the best ways to improve critical thinking is by asking probing questions. Instead of accepting information at face value, ask why things are the way they are. Who is presenting the information? What evidence do they have? Are there alternative viewpoints?
2. Challenge Assumptions: It’s easy to rely on long-held beliefs, but they can sometimes limit our thinking. Actively question your assumptions used when using software as well as the natural assumptions that you might make about an individual. This is especially important when you are making recommendations to clients. For example, why do you believe a certain investment strategy will work? Is it based on evidence or just past experiences? Have you recommended something similar (or the same) to similar clients – so naturally believe that it should work in this new situation? We will be covering lots more on assumptions including how to think them through and set out a reasoned argument in our CFP courses.
3. Seek Diverse Perspectives: Surround yourself with people who have different viewpoints. This can help expose you to new ways of thinking and challenge your own biases. In financial planning, for example, discussing strategies with colleagues who specialise in different areas can help broaden your perspective. Over the last 15-20 years, I have seen a shift from planners and paraplanners, steering away from those who challenge them. Some of those reasons might be to protect their mental health – I’m not talking about that. But we all should be opening ourselves up to be challenged in a kind and supported way and not in an abusive or controlling way. Without challenge, we don’t develop our critical thinking skills, we don’t learn as much or as fast and that then has a knock-on effect for the clients we are advising now as well as those who we will advise in the future.
4. Reflect on Your Decisions: Take time to reflect on past decisions, especially those that didn’t go as planned. What could you have done differently? Was there a flaw in your reasoning? Learning from mistakes is a crucial part of developing critical thinking skills.
5. Use Data and Evidence: Always look for solid evidence to support your decisions. Whether it’s client data, financial reports, or academic research, relying on facts instead of feelings ensures that your conclusions are well-grounded. Don’t just look as far as the evidence to support one decision. Also look for evidence that doesn’t support it or perhaps supports an alternative decision. I commonly see planners say that there is one solution to any give client’s problem. But in over 25 years as a CFP professional, I have NEVER seen just one solution to one problem. Never, ever! So don’t pigeonhole yourself into thinking that there is one ‘perfect’ solution – that doesn’t exist!
Let us know your thoughts and questions – Get in touch.
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