Financial coaching vs. financial advisory

Contrary to popular belief, financial-related emotional crises do not only affect those in debt or living in poverty. It is often the case that someone who is objectively not in a particularly bad financial situation, or is even wealthy, still experiences emotional crises related to their finances, which I described in the article Financial-related emotional crises.

Sometimes, the mere fear of losing even a small amount of money can lead to a mental breakdown. It happens that suicide attempts are made by people who, even though they have lost some money, still possess significant assets and are financially secure.

Another issue is disputes over money (especially regarding spending, earning, saving, and risk-taking) and differing approaches to financial matters. These are the cause of many conflicts in families—even those that are well-off. I touched upon this topic in the article: Financial conflicts in relationships.

Our beliefs about money, destructive habits, comparing ourselves to others, and overly high expectations of ourselves are often the cause of immense psychological suffering and can lead to clearly poor financial decisions.

What areas does financial coaching cover?

In financial coaching, we work on many aspects, depending on the client's needs and the problems they seek help with. Most often, during our sessions, we address the following issues:

• Helping the client understand how their life experiences, family patterns, personality traits, and beliefs can support or hinder a healthy approach to money, such as saving, spending, earning, investing, etc. If you are interested in this topic, I refer you to my article on 9 areas of financial management – how do they look for you?
• Assisting the client in rational and systematic personal financial planning.
• Implementing beliefs, habits, and actions that facilitate financial security and eliminating those that hinder it.
• Providing the client with knowledge about which psychological traps (e.g., cognitive biases and heuristics) can negatively influence financial, purchasing, and business decisions.
• Helping the client understand their "psychological" financial identity profile and attitude toward money, and translating this into effectiveness in achieving goals and building a stable financial situation. I wrote about this in the article: Financial identity and its impact on life
• Assistance in setting healthy financial goals, taking into account the client's core values and the "ecology of the goal" (based on coaching principles, if achieving a goal is harmful to the individual, it is not ecological and should be reformulated).
• Support in maintaining motivation and consistency in action.  

Crisis financial coaching requires the coach to possess additional knowledge and skills in crisis coaching, confirmed by certification. This allows us to work with the client on managing the emotional crisis and stress stemming from money or their financial situation. In this process, we teach the client stress reduction methods, how to manage their emotions and mood, and actively support them in implementing constructive ways to cope with emotional distress. We also share knowledge (psychoeducation) and provide emotional support, empathetic listening, and feedback.  

The role of a Crisis Financial Coach/Mentor within the method promoted by psychologist Piotr Łabuz is based on two main tasks:

• Supporting the client in a crisis stemming from money (Financial crisis coaching),
• Supporting the setting, planning, and achievement of financial goals (Financial mental training).

When working with a client using this method, we devote significant attention to the psychology of happiness, well-being, and maintaining mental energy. We support the client in developing an approach to finance that avoids toxic materialism, workaholism, selfishness, or anxiety disproportionate to the situation.

We also analyze whether there are any internal conflicts that may be blocking the client from achieving their goal. For example: when a client wants to maximize their income and overworks, yet declares that family is their most important value, or when someone holds beliefs (even unconscious ones) that "money is the root of all evil," leading them to subconsciously take actions that hinder their financial goals. We also work with the client to create a list of broad support resources that can help them achieve their financial goals and overcome problems.

The above examples do not cover all areas that can be addressed through financial coaching.  

However, I want to clearly emphasize that some psychological problems require working with a psychotherapist or even a psychiatrist and cannot be addressed by a coach, such as addictions (including compulsive shopping or gambling addiction), mental disorders, or clinical depression.

Financial coaching vs. financial advising  

Financial coaching is not financial or investment advising! A financial coach does not hold investment advisor credentials and cannot recommend specific financial products to a client—for example, opening a savings account at a particular bank or taking out a loan in a specific currency.

A coach can only provide basic advice on investment concepts, building a financial safety net, or the psychology of finance, but they are not permitted to advise the client on how to manage their assets or what specific financial decisions they should make.

In contrast, an investment advisor is a regulated profession under Polish law, meaning that to practice legally, one must hold a license issued by the Polish Financial Supervision Authority. Investment advisors typically work for investment fund companies, brokerage houses, banks, and other institutions related to the financial market. As investment advisor Marcin Reszka writes:  

"Unfortunately, among those not typically involved in the financial market, this profession is often confused with that of a financial advisor. A financial advisor does not undergo any qualification procedure. They are not required to have any specific education, training, or passed exams. Anyone can become one—it is enough to simply call yourself one. An investment advisor is a person with extensive knowledge confirmed by an exam and a license. You are not allowed to use this title without a license (this professional title is legally protected)."[1]

As Business Insider reports: "The primary task of a financial advisor is to help an individual or corporate client make sound financial decisions. They usually assist in safely achieving financial goals such as obtaining a mortgage, a loan, or selecting life insurance or a pension fund."[2]

However, it must be remembered that this is not a regulated profession, so a person who calls themselves a financial advisor , making it more difficult for a client to verify their level of financial expertise.  

[1] https://www.sii.org.pl/15065/znizki/oferty-specjalne/doradca-inwestycyjny-jakie-zarobki-jak-zdobyc-licencje.html
[2] https://businessinsider.com.pl/poradnik-finansowy/doradca-finansowy-czym-sie-zajmuje-i-jak-nim-zostac/kzlbx2y