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The Top Personal Principles that Affect Your Financial Plan Thumbnail

The Top Personal Principles that Affect Your Financial Plan


When partnering with a financial planner, it’s essential that you create an open and trusting relationship. One of the best ways to do that is to understand how the other person operates. It’ll be important for your financial planner to get to know you, and vice versa. Each person will have different personal principles that affect the way a financial plan is executed.

This article discusses common values, biases that people commonly have, and how they are able to influence the financial planning process. Also included are principles that financial planners utilize in order to have a more effective session with you during meetings. Two of those ways include understanding how you learn best (learning styles) and understanding the best way to approach you.

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Values, Biases, and Behavioral Characteristics: Their Impacts on Financial Planning

Here are several ways that values, biases and behavior can get in the way of properly executing a financial plan. Consider these when working with your financial planner.

Behavioral Finance

Behavioral finance relates behavioral and cognitive psychology to financial planning and economics in an attempt to understand why people often act irrationally during their financial decision-making process. For instance, many people choose to pull their money out of the market during a time of fluctuation.


Anchoring is when individuals make decisions based on information that should have no influence on the current situation. For instance, whether a friend chose to invest in a security or not should have no bearing on your own financial plan. Each person’s situation is unique.


Having an excessive optimistic opinion of one's knowledge or control of a situation is called overconfidence. Someone may feel confident in their investment choices when they could actually benefit from further education.


Recency is the tendency to emphasize a recent past when considering historical information. Someone may remember the past performance of a specific type of investment and allow that to influence their current selections.

Herd Mentality

This is the tendency to follow the actions of a larger group, whether the action may be rational or not. People who follow the herd often believe that the large group knows something they do not. Following market trends would be an example of this.

Prospect Theory

This theory suggests that investors fear losses more than they value gains. Due to this, an investor will often make the decision to choose the smaller of two potential gains if it avoids a sure loss.

Confirmation Bias

This is a bias that people have when they pay more attention to information that supports their opinion while disregarding accurate information. It’s important to separate facts from feelings when setting goals and making selections for your portfolio.

Mental Accounting

This is a tendency that people have to put their money into accounts based on the function of the accounts. For instance, some people may choose not to invest in IRAs because they don’t have the option to access money without possible taxes or penalties. In this case, they would choose to invest their retirement money in a taxable account instead and miss out on the advantages.

Framing Effect

Under the theory, people make decisions based on a set of beliefs or values. People will generally choose what they perceive is positive versus negative or getting something of high value versus low value. It’s essential that you only invest in products that you are comfortable with, while also being cognizant of your risk tolerance, time horizon, and accessibility needs.

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Principles of Communication and Counseling

Here are several ways that your financial planner will attempt to connect with you and develop a relationship. Make an effort to reciprocate as they are looking to be a trusted partner in your journey towards reaching your financial goals.

Emotional Intelligence

A financial planner will look to recognize emotional expressions in oneself and you. Emotional intelligence involves the planner selecting appropriate responses to your emotions.

Active Listening

The planner will pay full attention to what you are saying, and look to confirm your thoughts by paraphrasing. This is to ensure that they completely understand what you are trying to say.

Leading Responses

Financial planners will utilize open-ended questioning to encourage you to provide detailed responses to their inquiries. This will allow them to fully understand you more easily.

Body Language

This involves facial expressions, gestures, and body posture. Body language can actually impact how messages are received more than any other type of communication. Your financial planner will have engaged and open body language in an effort to open up lines of communication.


Context correlates to past history or conditions that exist during communication. These things will be considered by your financial planner beforehand. This can include your attitudes, values, biases, cultural influences, age, and expertise. 


Mirroring is a way that your financial planner can develop a sense of comradery. This is accomplished by imitating your physical or verbal positions.

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The Three Types of Learning Styles

Everyone learns in a different way. Your financial planner will utilize your preferred learning style to educate you about finances. Which learning style suits you best?


Those with visual learning styles respond better to visual objects such as graphs, charts, pictures, and reading information. This includes visuals that are present in data collection software programs or presentations.


Those with an auditory learning style retain information through hearing or speaking better. The financial planning process can be more effective for these types of people if their needs, priorities, and goals are discussed first before being put into writing.


People with kinesthetic learning styles will understand concepts better by having a hands-on approach. This can include writing goals and objectives with bullet points.

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Counseling Theory

Financial counseling is the process of helping clients by changing their poor financial behavior through education and guidance. Your financial planner will take these different approaches in the financial planning process.

Economic and Resource Approach

In this approach, financial planners assume that their clients will be rational and will change if given the appropriate counseling. Your financial planner takes on the responsibility of guiding change. The focus on using this approach is to obtain and analyze quantitative data.

Classical Economics Approach

You as the client will choose among alternatives based on objectively defined cost-benefit and risk-return tradeoffs. The approach believes that increasing financial resources or reducing financial expenditure will be able to results in improved financial outcomes.

Strategic Management Approach

Your goals and values drive the client-planner relationship in this approach. Conducting a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) should be completed early in the financial planning process.

Cognitive-Behavioral Approach

This approach states that your attitudes, beliefs, and values influence your behavior. Planners use this approach to change negative beliefs that lead to poor financial decisions by reinforcing positive attitudes.

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Get On the Same Page with Your Financial Planner

Besides your finances, the ultimate goal should be for you to trust your financial planner so that you can communicate openly. When you do so, your personal principles can be taken into account to create the most suitable financial plan. Utilize the information above to initiate productive client-planner conversations at your next meeting.

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