In a new white paper, Beekman Wealth Advisory founder Elizabeth Anderson counsels women on how not to become a “bag lady” with six common sense lessons. For those of you unfamiliar with the concept, here’s a definition:
Bag Lady Syndrome: The irrational fear of not having enough money, and, in the extreme case, of ending up destitute and homeless. According to one survey, a “startling 90% of American women said they felt financially insecure”, and nearly half responded that they suffered “tremendous fear of becoming a bag lady”, including 48% of those with annual incomes over $100,000.
In the daily business of managing a client’s portfolio, it is sometimes easy to lose sight of our clients as individuals, with fears and concerns that spill over into their financial lives. While putting client interests first is part and parcel of an advisor’s role, Elizabeth says it can be especially important when they are in the grip of high emotional distress caused by an event such as death or divorce, or even with someone who has irrational fears about becoming a bag lady.
As someone who routinely puts herself in her clients’ shoes, I asked Elizabeth to turn the tables and give advisors lessons for helping clients in these types of stressful situations. Here are her four ‘lessons’ that advisors can take to hear.
Lesson #1: Build Personal Relationships With Your Clients
Elizabeth shared a story with me about two of her clients, a brother and sister. They lost their mother, one of Elizabeth’s first clients, suddenly, in an accident. It was obviously a traumatic time for them. Elizabeth took the daughter to lunch, gave her a hug and expressed her condolences. Then they talked, not about finances, but about her Mom. “The daughter told me that I was the first person who spoke to her as a human,” says Elizabeth. “The estate lawyer was focused on estate planning matters with her, the accountant was focused on preparing the estate tax return,and other money managers were focused on transferring assets,” she added.
According to Elizabeth, after someone has been divorced, widowed or loses a parent, advisors often tend to focus on the financial aspects of the situation. When clients are feeling the pain of a real loss, just to say “I’m really sorry” or “I realize what you are going through” can be the words they most want to hear.
In general, Elizabeth counsels clients not to make any important financial decisions at times of high emotions. “When your client comes and wants to sell everything or move, counsel them to stop, take a deep breath and think it through,” she says. This approach will work if you have a relationship built on trust. By contrast, if it’s a relationship that is “sporadic or based on selling products to someone and you suddenly show concern, that sort of approach may not work.”
It all boils down to building deep relationships based on trust and relating to your clients as individuals, not portfolios.
Lesson #2: Learn to Say “No” to Your Client
In Elizabeth’s 30+ years in the business, she has seen many examples of advisors putting clients into risky investments such as junk bonds, at great risk to the principal, to attempt to generate the level of income the client wants. “If someone wants to withdraw 8% a year, advisors need to learn to say “No” and to explain the tradeoffs and implications,” says Elizabeth. She adds that you need to be honest with clients about what their portfolio will support.
She told me that even independently wealthy clients can overspend. For instance, she has been hired by parents who have adult children with a spending problem. Her role is to help heirs understand that they must fit their lifestyle to their wallet.
How do you politely say “No” or explain what spending level a portfolio can support? Elizabeth calculates a sustainable spending rate for clients. She does a break-even analysis that says if you want to be able to spend X% of the portfolio, then Y% is the target return you’ll need to earn on the top line.