From the October 2009 issue of Investment Advisor • Subscribe!

The Affluentialist: Beyond the Numbers

From comprehensive planning to giving advice on the non-financial

The advisor had worked for a few months with the highly successful client who owned a wholesale distribution company, carefully noting his goals, family concerns, and assets. The client quickly understood the advantages of updated wills for him and his wife, new life insurance trusts, and a new succession plan to allow his children to take over the business.

Then, just before implementation, the process braked to a stop. The unsigned life insurance applications and legal documents sat in the client's desk drawer for several months.

When the advisor asked once again if the client would like another walk-through of the plan, he responded with a surprise announcement. "It's not necessary," he said. "I get it. What you did is great. It's just not the plan I need now." He went on to explain that he was going to leave his wife and wanted a revised plan that would account for a divorce and protect assets in case of a second marriage. "I'm ready to sign that plan," he said. "As soon as we're done with the new plan, then I'll tell my wife the news. You're great with advice. Any ideas on the best way to do that?"

The more intricate the financial and personal lives of clients, the more likely clients will ask for non-financial advice. Or, since advisors are in the business of helping clients and providing advice, they will tend to offer guidance in an area for which they may not have training. According to a new study of 1,374 CFPs, 25% of the contact with clients is about non-financial issues, and that amount of time has increased over the last five years. These study participants listed their non-financial discussions as ranging from divorce, health, death, depression, children's emotional problems, spending problems, religious/spiritual issues, and addictions, among others.

Two researchers from the University of Louisville, David Dubofsky, PhD, CFA, a professor of finance and associate dean for research, and Lyle Sussman, PhD, a professor and chairman of the department of management and entrepreneurship, published research that quantifies the extent of life coaching activities by financial planners in the August and September issues of the Journal of Financial Planning.

Beyond the Numbers

Related to the anecdote above, 57% of the planners said that clients had told them non-financial secrets that no one else knew. Moreover, almost 34% of the advisors said clients asked them if they should or should not get a divorce. Given the sensitive nature of such discussions and others, planners have observed clients in some very emotional states.

"It just jumped out at me that we've had about 74% of planning sessions where a client is manifesting emotional discomfort--crying, trembling, sobbing--and the advisor had to cancel the session," noted Sussman in discussing the findings.

The extent to which advisors may encounter emotionally distraught clients was captured in a remark made by an advisor who related that the most important tool in her toolbox was nothing more than a box of Kleenex. "Financial planners know sensitive issues about some of their clients' lives that no one else on the planet knows, not even a legal advisor," concludes Sussman. The study's findings suggest as well that advisors know more about their clients than do many spouses. One finding was particularly surprising to the researchers: that 10% of the planners reported that they were aware of a client considering suicide.

Dubofsky and Sussman concluded that many financial planners serve as therapist, psychologist, social worker, and even clergy member for their clients.

Life vs. Clinical Planning

We had all these open-ended responses at the end of the survey," reports Dubofsky. "We went through all of them and were struck by the passion by some of the people--respondents that were either for or against this idea of coaching beyond financial issues. What struck the researchers from those comments, he says, is that it's "almost schizophrenic in how planners view themselves, what their roles should be, what their profession is, and what they should be doing for their clients."

For advisors who take the advanced planning team approach for high-net-worth and ultra-high-net-worth clients, the choice of focusing on clinical planning versus the holistic life planning isn't as split, however. Advanced planning requires a comprehensive thoroughness that will examine and account for any aspect of clients' lives that can have an impact on their financial security and goals--and that certainly includes the full range of emotional challenges they may face.

While the planning team as a whole needs to take an integrated life planning approach, some individual members may follow a more clinical posture for their particular piece of the planning. How much a business valuation expert needs to be concerned about the client's communication problems with a son not engaged in the family business, the team can decide, for example. This mix can work as long as the team leader manages for overall comprehensive life planning.

Similar to the split in opinions about following a clinical as compared to a life planning approach, respondents in this study insist on the importance of religion and spirituality in how they interact with clients--or they absolutely oppose such a mingling. Some of the advisors even take the position that being a planner means doing "good work," that is "God's work," and they should sow the seeds for their clients to do the same. Others never touch religion and spirituality during any financial planning discussion.

Ethical Compromises

Another surprise from the research results for Dubofsky and Sussman was the extent to which potential heirs and non-profits that might receive a bequest heavily lobbied planners who they hoped would influence the clients to think of them favorably when developing the financial plans. About one third of the respondents stated that they were contacted by family members or philanthropic organizations.

Planners have also found themselves in the ethically challenging circumstances of clients wanting them to be sole executor and co-executors of trusts. While it speaks to the high degree of trust clients have in their advisors, such a role places extraordinary responsibility on the planner to act as an executor at the same time they are exercising an investment advisory role, for example. Twenty percent of the respondents said that they had established a trust and they were listed as the sole or co-executor of the trust.

As advisors who have worked with high-net-worth clients have discovered, the more comprehensive the advanced planning, the more involved you get in the family life and the extended generations.

Estate plans, for example, can leave more than assets to heirs. While advisors can't resolve decades of client-child dynamics, they can develop solutions with the advanced planning team that better serve both clients and children, if they know how to "read" a family. Clients can try to encourage future beneficial behavior, such as limiting access to trust income to curb the self-destructive appetites of an immature adult child. Estate plans can positively influence future behavior and reduce family conflicts. Or, they can create or reinforce unproductive behaviors and poor communication, and yield lasting friction among family members.

"I believe the complexity of the drama and the depth of the drama increases as the assets increase," notes Sussman. "What's unfortunate is that less than 40% of financial planners have had any training at all in dealing with these issues."

Based on the study findings, the researchers identify areas where advisors need to improve their skills if they expect to engage clients with a life planning approach. They suggest boosting your emotional intelligence by improving key components such as self awareness, social awareness, self management, and relationship management. A related competency is building highly developed communications skills, which include consistency between what the advisor thinks he or she is saying and what the client hears--in addition to empathetic listening to what the client is actually saying.

New Experts for the Team

Dubofsky and Sussman don't suggest that advisors go back to school and get their doctorates in psychology, however. Just as the leaders of advanced planning teams have broad financial knowledge beyond their own expertise that allows them to be effective managers of specialists, a greater understanding of the emotional lives of their clients allows advanced planners to include other outside experts, such as marriage counselors and family therapists.

"We think it's better that you have referrals," says Dubofsky, "that you have an inventory of individuals that can help these clients solve some of the emotional challenges they're facing, their family problems, even their psychological problems. You have to think up front how you are going to deal with these client problems, because you are going to face them."

Reprints Discuss this story
This is where the comments go.