Knowing what’s what benefits both you and your clients.
Greetings, Talking About Money community!
As I keep seeing this question bubble up in the many networks that I belong to, I want to take a pause and delve into the seemingly age-old question, “what is the difference between financial counseling and financial coaching?”
The people who ask this question do this, I believe, with the most honorable of intentions. They believe that as helping professionals, being helpful is what is most important. What does it matter what label we are giving to the helping?
I do believe that naming things correctly does, in fact, give them more power. I believe that practitioners should know when and where to apply the different tools in their toolbox (like that old adage about when all you have is a hammer, everything starts to look like a nail…). And I believe that our clients deserve to know what intervention they are participating in, so that they can choose the service that best aligns with their financial problems and goals.
Let’s dive in.
What is financial counseling?
According to the Association for Financial Counseling and Planning Education, financial counselors meet individuals and families where they are and help them build a strong financial foundation. More broadly, counseling provides a trusted space for problem solving. Financial counselors are skilled at working through difficult financial situations up to their resolution. Professionals who hold their AFC accreditation prove their expertise in areas such as gathering client information; creating an action plan; developing financial statements, ratios, and spending plans; managing money, credit, and debt; educating a client about major acquisitions; managing financial risks; discussing investment basics; and educating a client about the financial aspects of retirement and estate planning.
According to PositivePsychology.com, counseling is typically retrospective, in that it is looking into the situation of the client that has evolved over time. The client may approach the counselor because they perceive themselves to have some sort of financial problem that they want help solving, either of their own accord, or due to falling victim to some sort of financial predator. Counseling tends to have “why” orientation, such as why the client arrived at this place, and what are the necessary steps to get them out. There may be a behavioral aspect to counseling, where the counselor prescribes the optimal way for the client to use their money, and client reports back to the counselor on how their behavioral modification plan is going.
Counselors tend to take the time to collect the client’s financial information so that they can review and analyze it. They are recognized as financial experts, so the client is encouraged to follow their advice. Counseling may be a long-term intervention, though this varies based on program parameters. While some financial counselors work in the nonprofit sector and offer their services to community members free of charge, other financial counselors work in fields as varied as banks or credit unions, higher education, military, and the government. Still others work in private practice where clients pay them directly for their services.
Like mental health counseling, there can be stigma attached to financial counseling, as some clients may believe that they need to meet with a counselor because they have done something wrong. Some nonprofits may unintentionally foster this stigma by requiring clients to meet with a financial counselor as a precursor to qualifying for some other benefit that the agency offers.
What is financial coaching?
The International Coach Federation defines professional coaching broadly as partnering with clients in a thought-provoking and creative process that inspires them to maximize their personal and professional potential. The ICF is a credentialling organization that offers three levels of professional coaching credential: Associate, Professional, and Master. While professional coaching is not yet a regulated profession, training and credentialing is highly encouraged in this field.
Professor J. Michael Collins of the University of Wisconsin-Madison defines financial coaching as
…regular one-on-one sessions with clients in order to ‘coach’ performance improvements to meet goals mutually set by the coach and client. Coaching is differentiated from counseling in that coaches are not “experts,” but instead they provide encouragement and monitoring over advice and do so in a process largely driven by the client.
As we see from the description above, professional financial coaches do not necessarily need to be financial experts (though many are), but rather have mastered the skills of coaching in order to serve the identified goals of their clients. Sage Financial Solutions does a particulary good job of training those who are already subject patter experts in financial capabiltiy to become financial coaches.
According to PositivePsychology.com, coaching includes several specific characteristics. Coaching is generally future-oriented, without much attention or weight given to past life events. Rather, the coach and client work in partnership on examining external and internal resources and the client’s capacity to change so that they can reach their goals.
Unlike counseling, which often is designed as open-ended, coaching more frequently is designed as short-term and time-bound, where the client commits to a specific number of sessions or a certain period of time. Further, coaching does not have a diagnostic element—it is unusual to see a financial coach preemptively gather all of the client’s financial account information for review and analysis without the client specifically requesting this to happen. There is little to no data collection or measuring metrics of success beyond client satisfaction.
Coaches aid their clients in clarifying their goals and assessing their readiness for change. For counselors who fret over their clients not having the follow-through to get things done, pursuing professional coach training to develop coaching skills can have a lasting impact. Fundamentally, coaches view their clients as “creative, resourceful, and whole,” and have full faith in them to achieve their goals during the timeframe of the coaching engagement.
What’s the difference, and why is it important?
There are marked differences in the professional attributes of financial counselors and coaches. Financial counselors are trained in the elements of sound money management and harness their expertise to assist their clients in adopting positive financial knowledge and skills in their own lives. They help solve financial problems and can offer sound financial education to their clients. Financial counselors are invaluable in a financial system that preys on the financially insecure and they help fortify their clients with individualized solutions to their problems.
Financial coaches, while frequently experienced personal finance experts, do not lead with this aspect of their professional background and training. Coaches enter into a professional partnership with their clients in order to support them in achieving their self-determined goals. Coaches believe in their clients’ ability for growth and utilize their coaching skills to work with their clients to unlock their external and internal resources and capacity for change.
It’s important to call each modality by its accurate label because each skill set is unique and provides value in their own way. For a client who is trying to get out of credit card debt, a skilled counselor can work with them to discern what caused them to get into debt in the first place, to reflect and consider better spending choices going forward, and to learn how to advocate for themselves to credit card companies and credit bureaus. For a client who wants to get on track with their retirement savings, a skilled coach can work with that client to help them recognize the importance they place on retirement security, to identify their personal characteristics that will buttress their attempts to establish new savings habits, and to serve as an accountability partner as they try out new perspectives and actions.
Finally, can a counselor practice coaching skills, and can a coach pause to listen to a client vent about their past? Yes, and yes. Many of the strongest financial counselors I know utilize the skills of active listening, being comfortable with silence, and maintaining curiosity. Financial coaches that I work with adhere to high ethical standards, maintain confidentiality, and express respect and non-judgement of their clients. While there is certainly an overlap between the two modalities, it is important to use the job title that most accurately reflects the service you are providing to your client, so that you both can identify your markers of success.
What do you say?
Do you think that financial counseling and coaching are interchangeable?
Do you agree with the statement that to conduct financial coaching, the coaching skills are more important than the financial skills?
Have you ever been the client of a professional coach? Is so, what was the experience like? (And if not, you can get a lot out of working with a professional coach, both personally and professionally – click here to learn more.)
Share your thoughts with this insightful and supportive (and did I mention good-looking?) community, either in the Comments below or on LinkedIn. Thanks, stay safe, and be well.
