How to Handle Client Setbacks: Advice From 6 Industry Gurus

Anyone in the planning business knows the humbling adage, “Man proposes, but God disposes.” Or more colloquially, “Stuff happens.”

When bad things happen that disrupt a client’s plans and peace of mind, the advisor relationship can be another casualty. As retired financial planner Dick Vodra observed, “One of the first stages is anger anyway, at the catastrophe that happened. You’re looking for someone other than yourself to blame, and your financial advisor is a likely target.”

In this year of political and financial unpredictability, and the still unfolding drama of Brexit and central banks acting in divergent ways on interest rates, how can advisors keep relationships strong by helping clients prepare for setbacks — and recover from one, if it happens?

We asked for advice from six experienced planners and advisor industry gurus: Vodra, Sheryl Garrett, Dan Skiles, Christine Moriarty, Mark Tibergien and Bhaj Townsend.

More Than Market Downturns

Vodra, a planner for 27 years in McLean, Virginia, pointed out that helping clients anticipate and recover from setbacks is very different for a holistic financial planner than for, say, an investment advisor or broker. “We can imagine a list of bad things that happen to people: illness, divorce, death of a child or child goes to an expensive college,” he said. “If I were a financial advisor in the narrow sense, I might say, ‘One of these is going to hit you. I can’t prepare you emotionally to deal with it, but I will be here to help you straighten out the accounts, deal with the lawyers and access community resources to help you cope.’ But if I am a life planner, I’ve taken [more] of the burden on. I’m going to hold their hand more through the process.”

Sheryl Garrett was even more specific. “I feel that one of a financial planner’s major roles is to help their clients recognize, plan and prepare for all of life’s ‘expected’ events. And not just to help anticipate all of the likely and possible outcomes, but to help the client handle those financial setbacks when they occur.”

Garrett, founder of the Garrett Planning Network, said that although some clients think of market slumps like that caused by Brexit as a financial setback, she doesn’t consider fairly normal downturns to be in the same category as personal or natural disasters. “What I feel [clients] fail to focus on is their ability to keep earning money as they have been,” she said. “What if they become injured or ill? We lose jobs; businesses fail. Bonuses don’t come. People get sick; they die. A child has serious issues involving time and money. We live much longer than expected. We have triplets. College funds went to a drug rehab treatment center, etc., etc. This is life!”

In short, planners need to help their clients deal with two kinds of financial risks. One is external, Vodra explained: “The markets go down, their stocks plummet, the oil well doesn’t work out. The other is internal: They’re spending too much money, they’re not saving money, they’re giving too much money to their kids, their house is too big.

“In terms of the external, you need to make sure your clients understand which risks they can protect against and which ones they can’t,” he said. “This is the traditional financial planning risk management chapter.” In other words, making sure they have cash in a local bank, enough property, disability and life insurance to handle emergencies, up-to-date beneficiaries on their life insurance and retirement plans, and so on.

“But as to the internal factors, it involves permission,” Vodra continued. “Does the client want you to talk about these things, like spending too much money or having a budget? A lot depends on the engagement agreement. Some planners are best friends with their clients; others have more boundaries about what they do and don’t talk about.”

Another complication is that clients may resist changing their behavior, even with their financial security at risk. “If they don’t want to do the work even though they’re in trouble, that’s a real challenge,” he told us. “That’s where your [money psychology] expertise, Olivia, comes in.”

We couldn’t agree more. Helping resistant clients make painful changes is very hard. The closer and stronger your connection, the more successfully you may be able to impact their behavior. But people have to be motivated to change. As the saying goes, “How many therapists does it take to change a light bulb? Just one, but the light bulb has to really want to change.” You can’t expect a miracle.

“To talk about these difficult subjects,” suggested Christine Moriarty, president of MoneyPeace in Bristol, Vermont, “I ask them what difficulties they have weathered in the past and how they did it. The other thing I do is to give them examples, from my own life or my clients’ experience, of what can happen and why they need to be prepared.”

One story she tells is that of a client in the construction industry who felt the implications of a slowdown in building some 10 years ago. “I listened to him empathetically and met with him every month to review his financials, discuss whether he had to lay off more staff and encourage him to take smaller jobs than he was used to in order to have some income coming in,” she said. “For almost two years, we had to monitor his cash flow constantly.”

Thanks to careful adjustments of his plan as needed, Moriarty’s client successfully weathered the recession. “He’s now contributing to a retirement plan, has new employees and is out of stress mode,” she said.

Involving Clients in the Plan

As Moriarty’s client story illustrates, a key factor in preparing clients for potential setbacks is to involve them closely in the planning process. Bhaj Townsend, president of Focus and Sustain in Seattle, said, “I think it is wise, useful and important for families to get together before these events occur and have the critical conversations about who is going to take care of what and how. I like to go through a scenario of possible setbacks and possible consequences, and have them walk through what they would do if these setbacks occurred, either suddenly or over time.”

Otherwise, a sudden catastrophic event can trigger harmful dynamics. For example, Townsend suggested, suppose a mother or grandmother suffers a serious stroke and is taken to the hospital. She hypothesized, “In a heightened emotional state, they call the first person on the speed dial, which happens to be adult child No. 1, when in reality it’s child No. 2 who has the power of attorney. Child No. 2 is in a business meeting and doesn’t get the message for hours. Meanwhile, decisions are being made by child No. 1, or the spouse of child No. 1, whose motives you’ve always questioned.”

Organizing facilitated retreats with empathy and good communication can head off such crises down the road. Still, the process is not always easy. As Townsend cautioned, sensitive family dynamics may force conversations into familiar dysfunctional ruts or keep important issues from surfacing. When Mellan has facilitated such retreats, she’s always amazed by how much progress the family makes in ironing out their differences.

As Garrett said, “Discussing our clients’ lives, and how their families, children, parents, etc., may have to rely upon them physically or financially, is a critical conversation. It all boils down to people and planning, and little about finance.”