Helping Clients Who Overspend
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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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?
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.