Helping Clients Who Overspend

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Helping Clients Who Overspend
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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,

How do I get through to clients who spend too much money?

I can’t imagine we are the only advisor that deals with this. These are often people who have saved a lot but not enough to allow them to spend frivolously with no regard for their other goals. As one example, we have a client who wants to be able to retire at 50, a reasonable goal for someone who is late 30s and making several hundred thousands of dollars a year, but is spending most all of it. We have shown him the plan for what he needs to save to reach his goal, but he and his wife have expensive tastes.

We have another couple who were on track for early retirement and then decided they wanted to support their daughter in her quest to start her own business. They are funding the entire thing, which will leave them with very little in savings for their retirement objectives. I have laid out their objectives, reminded them of what they have said they desire and put together very clear projections on how quickly the money will run out if they keep at the current levels. It falls on deaf ears – they say, “yes we understand.” But then the next thing I know we are getting requests for redemptions. It’s their money but I don’t want us to be accused of abdicating our fiduciary standard because we aren’t keeping them on the track they laid out in the first place.

What should we be doing and how do other advisors deal with this?

Doug S.

Dear Doug,

What discussions are you having with them? Your approach in having these discussions could make the difference. For example, you say you are reminding them of what they have said, and how their current behavior will not allow them to reach their goals. But what if their goals have changed? People do evolve and change throughout their lives and it is possible your clients now have other priorities. In addition, life is about trade-offs, so maybe instead of showing them the error of their ways, you could construct a couple of scenarios and let them choose which one is most appealing to them.

I hear this issue from advisors all of the time. It’s in the category of dealing with difficult clients because of the fear that they won’t listen, but then will blame you when they don’t get everything they want.

Communicating is important and it sounds like you are doing this. If you aren’t having goals-based discussions on an annual basis, make sure you are incorporating this. Instead of just taking whatever goals the client laid out in the beginning of your relationship and assuming that’s the Holy Grail for the client, talk to them about their emotions, life changes, what matters and what doesn’t. Have some deeper discussions with them about their values, and what’s most important.

Many people say they want to retire early, and many mean it and do it, but there are also others to whom the goal sounds good, but then the reality might not be so appealing. What will they do in retirement? How will they spend their time? What will they find fulfilling? Instead of just focusing on the end goal – in both cases here, retirement, focus on the meaning of retirement to them. If you can unearth emotional and values-based components to what the clients want to accomplish, it would give you a very different perspective and basis for having these discussions.

Remember, too, that when people resist something, it’s often coming from a fear-based mindset. Do the clients who are spending too much worry they are going to “miss out” on something important in life if they don’t keep up their expensive lifestyle? Does the couple funding their daughter’s business fear they will lose her love if they don’t do so? I know this sounds deep, but these are the emotional conditions that cause people to make decisions that aren’t always in their best interest. While you don’t want to play psychologist, you certainly could probe these decisions and behaviors and try and uncover a bit more about the thinking (and feelings) behind them.

I encourage other advisors to write in on this topic and share their experiences too.

By Beverly Flaxington, read the full article here.

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