Whether to Counsel Clients on Spending Habits

Beverly Flaxington

Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here.

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Dear Bev,

We are having more conversations with clients about their spending habits. This is a major transition in the advisor-client relationship. Historically we focused more on “what are you trying to accomplish with your money” but now it has turned to “what will you do if you spend your way out of your money?” This is financial counseling, not financial planning. Do you think it is appropriate for us to comment on the spending needs of clients? Of course from a portfolio perspective we want them to keep money invested with us. We have clients with large portfolios who could afford to spend and still have plenty for retirement.

Ben P.

Dear Ben,

Oh, how the role of the financial advisor has changed over the last decade – and continues to do so! A job that was mostly numbers based and required a degree in finance and investing is now so much more about human behavior, change management and psychology!

Counseling clients should be part of your role. I don’t see it so much about telling them what to do and how they spend their money, but rather helping clients to think through what matters most to them, what purchases they want to make and why, what they value and so on. I often have clients tell me, in my consulting work, that sometimes having been asked the right question they had not thought of before, or having to consider something they weren’t thinking about, is as helpful as actually being given the answers. Most of us don’t have the time or knowledge to step back and consider what we’re doing and why we are doing it. Financial advisors are in an excellent position to help their clients take that step back and think about what matters.

I often say that next to our health and our family, our money is the next most important aspect of our lives – and for some people, it may even trump health and family! This means it is inextricably linked to almost everything we do – what we value, how we view ourselves, what motivates and drives us. In order to plan effectively, it’s not just important, but it’s an imperative to help your clients think through their decisions.

It’s time to take a different look at the dilemma you have outlined here. Instead of thinking about this as you telling them what to do, or even whether ethically you should be having this conversation, talk about why they are doing what they are doing. Talk in terms of values and what matters. Most financial advisors will focus on the big things – philanthropy or legacy for example, but what about the day-to-day meaningful things. Maybe time with family or creating memories is the most important thing to your client, for example. If so, the money they spend on the amazing trip might seem frivolous to you, but it might mean everything to them. Or maybe living in a nice, safe area with the most excellent schools is paramount because your client values education and being around educated people. They might spend more on a house for this than you would think it prudent. It’s not always the black and white of the dollar amount, it’s about why people do what they do, and spend what they spend.

Become more curious and interested to learn about your client’s needs, wants and desires past what you might be looking at today. You might gain some important insights that help you in managing their portfolio or their wealth planning overall.