Feature Article

Relational intelligence: What is it and how does it differ from emotional intelligence?

To fully understand relational intelligence, we have to start by exploring emotional intelligence, a better-known concept. Emotional intelligence (EI) has become a crucial competency in financial planning, rising further in importance with the advent of artificial intelligence (AI). This uniquely human competency includes the capacity to identify, interpret and master our own emotions while remaining sensitive to the emotions of others. In financial planning, EI allows for a better understanding of clients’ goals and fears, leading to the development of strategies that are more tailor-made and effective and fostering the creation of lasting relationships of trust, which are essential in this field.

In a rapidly changing financial sector driven by AI, EI is a distinctive human competency. This shows us why it is so important for financial planning professionals to develop these skills in order to continue to be competitive and relevant in an ever-changing professional landscape. EI not only allows us to offer more personalized and empathetic service but also constitutes a competitive advantage in the face of growing automation, highlighting the unique aspects of human interaction in financial consulting.

Relational intelligence, meanwhile, refers to a set of competencies that allow us to establish and maintain lasting, healthy relationships that take our own and other people’s emotions into account. This form of intelligence is anchored in the capacity to interact harmoniously with others, leading to constructive, respectful exchanges. It involves factors such as empathy, effective communication and conflict management, which bolster essential interpersonal connections in various situations, including professional settings.

To fully grasp the nuances that separate emotional intelligence from relational intelligence, let’s use comparative analysis to look at their distinctive characteristics.

Emotional intelligence and cognitive biases

This section further explores the reflection initiated by Salomon Gamache, Vice-President, Development and Quality of Practice, by delving into relevant – and potentially useful – cognitive biases. Continuing on from last October’s issue of La Cible, this analysis goes into greater depth on these mental mechanisms that influence financial decisions. As we explained previously, emotional intelligence plays a key role in understanding the impact of emotions on financial choices, and it helps us identify and overcome clients’ cognitive biases and increase the chances that they will follow through on our recommendations.

In practice, clients do not always make purely rational decisions. Their choices are often influenced by “mental shortcuts” called cognitive biases. These biases can affect the way clients perceive and process financial information, sometimes pushing them toward decisions that are not ideal for their situation. For example, we know that people do not always make the most beneficial choices concerning when to start collecting their Québec pension (QPP). In this regard, I recommend a research workbook published last November by 2 professors and 1 lecturer from UQTR called Le choix du RRQ : Le pari du perdant ravi. This study examines this issue and clearly illustrates how cognitive biases can influence important financial decisions, even for well-established government programs like the QPP.

By recognizing certain cognitive biases in your clients, you can understand them better and guide them toward more judicious financial decisions. But it’s important to bear in mind that these cognitive biases, which impact decision-making, are not always easy to spot. There are many types of biases, and they often overlap or influence each other. The goal is to help clients take a step back from their immediate reactions. You have to encourage them to look at their financial situation and the choices available to them from a more neutral, thoughtful stance. By guiding them in this way, you will help them make more informed decisions that are more aligned with their long-term financial goals.

There are many cognitive biases that can influence clients’ financial decisions. They are varied and can show up in different ways for different people and in different situations. Although it is impossible to cover them all in detail in this article, understanding a few of them will help you support and guide your clients. Let’s look at one example that is relevant for financial planning: attentional bias.

Attentional bias

Attentional bias describes our tendency to focus on some things and ignore others. A number of factors contribute to this phenomenon. Clients are often drowning in financial information that they learn about through the media, on the Internet or from people they know. Their perceptions of finance can also be heavily influenced by their personal experiences and those of their close friends and family. In this situation, it’s not surprising that their decisions are not always purely rational. This bias can cause clients to focus on minor details while overlooking crucial aspects of their financial plan.

Example 1: 

A client may be so worried about investment fund management fees that he spends hours comparing costs but entirely ignores the funds’ past performance and investment strategy. This excessive attention to fees may lead him to choose a lower-performing fund simply because it is less expensive.

Example 2:

Another client may concentrate on recent statistics related to the average amount of savings recommended for retirement, such as those bandied about on the radio. Meanwhile, he risks neglecting other essential factors, such as the value of his defined-benefit pension fund and his government pensions, which should be included in that amount, leading him to save more than necessary. This prevents him from making the most of life, because he deprives himself of certain spending instead of achieving appropriate financial balance.

How this affects financial decisions

The focus on details, big or small, can cause clients to overlook essential aspects of their financial plan, such as risk management or proper retirement planning, leading to ineffective resource allocation and increased exposure to financial risks.

Some tips that may help:

• Create an information hierarchy: Help clients identify the most important aspects of their financial plan.
• Use visuals: Graphs and charts may draw their attention to key information.
• Repeat important points: Reiterate crucial information to ensure it is clearly understood and retained.
• Educate your clients: Explain the importance of having a long-term vision and managing risks, and show them how impulsive decisions can undermine their financial goals.

For your recommendations to be of any use, the clients have to sign on. That means you have to understand their thought processes and their reactions in various situations. This understanding will allow you to frame your advice in a way that they can not only hear but put into practice. The goal is to align your recommendations with their way of thinking, in order to maximize uptake and impact.