
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.
Dear Bev,
Clients are so fearful about what’s going on in Washington and how it might impact the markets. I have some clients who are purchasing guns and food, getting ready for civil war. It’s not rational and it is impacting their financial decisions and how they approach our recommendations. I broached this illogical behavior with a client and she went completely nuts and we might lose her account altogether. I’m at a loss. Should I give in to the paranoia and knee-jerk reactions and act like it is okay and normal, or address the nonsense? I don’t want clients to think we don’t care or aren’t paying attention. This is a “lose-lose” position.
Ed D.
Dear Ed,
In presentations I give on communication and human relationships I use a quote by an international mediator, Douglas E. Noll who wrote a book called Elusive Peace. His book says:
New discoveries in behavioral economics, cognitive and social neuroscience, and social psychology have demonstrated that emotions weave through our every thought, decision, and action. To paraphrase neuroscientist Antonio Damasio, we are 98 percent emotional and 2 percent rational. We are not nearly as rational as we think we are
If we accept this premise as true (I can validate that it’s what I see in the workplace!), one of the biggest problems financial advisors have is that they operate from a place of logic – numbers don’t lie, or do they? You can reconcile accounts, you can find the error in a math equation and you can locate the problem in calculating a return on an investment. It is black and white and you can validate it. For this reason, many advisors are more comfortable with logic and facts. It needn’t be emotional, it can be discussed rationally and logically!
However, human beings are complex, as you point out in your question. There are many decisions and reactions that are based entirely on “gut” or emotion. And, truthfully many good decisions are made because someone had an intuitive sense about something, or a gut feeling about it. We don’t really value this, but we know it’s true – not everything can be validated before we have to decide what to do.
So, to answer your question directly, I don’t think you really do have to choose between what you illustrate as a “lose-lose” proposition. You can validate the concerns of your clients as real – to them – and you can ask them how they need to be supported financially. You may disagree with their ideas and their purchases, but isn’t that the case with many things clients choose to do with their money? It’s similar to the answer I gave the previous writer in this column. It’s a balance but many times you have to refrain from judging the client’s actions because you put what they do through your own lens of what’s right and wrong. Instead, seek to understand and get on the same side with them to make good decisions. This doesn’t mean, in this case, you have to agree or give in to the paranoia, it just means you need to be respectful of their concerns and do your best to understand how important they are to your client. And a word of advice – never, ever meet a highly charged emotional situation with logic and facts. It rarely goes well.
Beverly Flaxington co-founded The Collaborative, a consulting firm devoted to business building for the financial services industry in 1995. In 2008, she co-founded Advisors Trusted Advisor to offer dedicated practice management resources to advisors, planners and wealth managers. She is currently an adjunct professor at Suffolk University teaching undergraduate students Leadership & Social Responsibility. Beverly is a Certified Professional Behavioral Analyst (CPBA) and Certified Professional Values Analyst (CPVA).
She has spent over 25 years in the investment industry and has been featured in Selling Power Magazine and quoted in hundreds of media outlets, including The Wall Street Journal, MSNBC.com, Investment News and Solutions Magazine for the FPA. She speaks frequently at investment industry conferences and is a speaker for the CFA Institute.
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