As all advisors know, it’s one thing to provide clients with appropriate advice and another thing to actually get them to follow that advice.
In this series of reports, Investment Advisor columnist and psychotherapist Olivia Mellan and financial behavior specialist Kol Birke of Commonwealth Financial Network address some common scenarios that advisors face in getting their clients to follow through on their advice. This advice for advisors flowed out of a web seminar hosted by Investment Advisor and ThinkAdvisor editor Jamie Green late last year.
When clients run into problems because they didn’t follow your advice, they may be able to recover if they’re still earning income. It can be a bigger problem, however, if they’re in retirement with a limited pot of money.
Scenario 5: Overspending Retirees
Jamie Green: A client couple has finally entered retirement, and you’ve carefully planned for their withdrawals. However, the couple’s spending is far higher than you planned.
Their requests for special outlays—to buy a boat for themselves, then a car for a grandchild just graduating from college—worry you because their portfolio is shrinking faster than you planned, plus it’s become an administrative nightmare for your staff. What should you do?
Olivia Mellan: It’s very important to meet with a couple together—and, if they have any bad will or any kind of power imbalance, possibly separately as well—to revisit their goals and assess whether they’re positioned to meet those goals.
I sometimes ask a couple to agree on the time frame for their short-, medium- and long-term goals, then go off separately and list their own personal, couples and family goals several times to see which ones they can really trust. Last, they look at each other’s final goals and try to harmonize the two lists. If clients are spending money more quickly than you thought they would, I think this is a good exercise to see how aligned they are.
Also, you need to take time to bond with them and empathize with what they want to do with their money. It doesn’t help just to say, “Listen, you really can’t afford to do this.” They won’t listen to you, and if either one of them is a spender, that person will feel very rebellious and resentful and probably won’t take your advice. But if you really bond with what they want, and see what the underlying need is—do they have an underlying need to support their grandkid, for instance?—then you can try to suggest other scenarios. Could they support him in a more affordable way than buying him a car?
After sufficient listening and patience, you can brainstorm with them about what they will do if they don’t have adequate funds to meet all their goals.