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How to Handle Client Setbacks: Advice From 6 Industry Gurus

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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.”

Helping Clients Recover

Let’s say you’ve persuaded your client to make the right risk management moves: diversification, tax planning, estate planning, insurance and so forth. Then the client’s spouse dies suddenly.

 (Check out I Planned for Widowhood but Got a Lot Wrong on ThinkAdvisor.) 

Ample cash reserves can take the sting out of many setbacks, and some or all of the financial pain may be alleviated by insurance. However, the emotional pain that comes with a major blow like this can be devastating.

Moriarty of MoneyPeace said, “I have two widowed clients. One’s husband died from suicide when the kids were young, and the other’s husband was murdered.” In such situations, her role has been to “listen to their pain and let them know they’re going to be all right financially, if that’s the case. Everything else they have no control of, but this is the one thing that, with your help, they can control.”

“The unexpected loss of a spouse is extremely challenging,” Garrett agreed. “We can prepare financially, but even with the best-laid financial plans, the emotional reality is not something most can prepare for. Simply being there, listening and offering help may be the most you can do. I’d definitely want names and contact information of grief counselors and support groups in the area, and if I felt the client would be best served working with an advisor with direct experience in becoming ‘suddenly single,’ I’d want to have the names to refer them to.”

Checklists can also be a great resource to assist clients in recovering from other emotionally charged setbacks, such as losing a home to fire, tornado or flood, or becoming an identity theft victim. Backing up important documents in the cloud can prevent both headaches and heartache.

For example, Garrett said, in 2011, an F5 tornado devastated Joplin, Missouri, killing 153 people and destroying tens of thousands of homes, including that of a good friend. “A few days after the initial shock, my friend tried to call her homeowners insurance agency, but the building was gone,” she said. “The toll-free number required a policy number to get past the first level of the phone tree.” (The insurance policy was eventually discovered under a pile of rubble, soaking wet.)

Most vehicles in the path of the Joplin storm were also destroyed, Garrett said. “Even if you had a vehicle, you couldn’t drive anywhere because of the debris. So no driving. No work. No paycheck. No electricity. Limited cellular coverage. Half the town needed temporary housing. It took two years to rebuild, and life is just now getting back to normal almost five years later.”

Ideally, none of your clients will suffer a similar loss of home, vehicle, livelihood and vital documents all at once — but you, and they, can’t assume it won’t happen. You might consider developing a template for a rapid recovery plan for each client, compartmentalized so that only the necessary components need to be activated.

Using Technology to Reassure (or Regroup)

“Technology can certainly help both advisors and their clients better handle setbacks,” noted Dan Skiles, president of Shareholders Service Group in San Diego. “For example, a performance reporting system will provide important perspective on a short-term setback. The client can see how their money has performed during periods of volatility, even during the tough year of 2008. It allows you to remind them of what their long-term objectives are.”

For example, “Let’s say the client says, ‘My son just chose a really expensive college. It’s going to cost a tremendous amount of money.’ Through technology, you can show them on the financial plan how this cost was anticipated and how it won’t affect their long-term retirement planning.”

Besides putting a setback into context, Skiles said, a financial planning system can work out any adjustments needed to stay on course toward the client’s long-term financial goals. “Overall, the goal with technology — whether it’s a financial planning program, performance reporting program or even a contact management program — is to take the emotion out of the current situation, and help provide context for what we’ve done and what we need to do going forward,” he said.

A Matter of Trust

In this volatile election year, with a new administration taking the lead in 2017, the stage is set for unexpected disruptions and financial setbacks. It’s crucial to get ahead of potential reverses, not just to safeguard your clients’ well-being but to protect your business.

(Check out The Year of Fear: How Advisors and Clients Can Handle It on ThinkAdvisor.)

Otherwise, Townsend of Focus and Sustain pointed out, “There’s the potential for loss of confidence, which can even transfer or spill over into the whole industry itself. For example, during the financial crisis of 2008, specific questions were asked and the answers couldn’t be found. It created a gap of trust between the client and the industry.”

In addition to “a serious loss of trust,” Moriarty agreed, “you’ll have a seriously stressed client who as a result will make worse decisions,” possibly including terminating the relationship.

At that point, Vodra said, it won’t matter if you were just following the client’s instructions to stay within certain boundaries. “If something bad happens and you didn’t do much [risk preparation], even if the client told you not to, they’ll be angry and it’ll be justified. Unless you’re nimble enough to catch up and clean up, you’ll likely lose the client.”

Even though none of us likes to plan for losses or setbacks when things are going well, the advisor’s job is to find a way to broach the subject and, in discussion with your clients, to make the necessary plans. Through storytelling, personal anecdotes and empathetic listening, you can help them prepare for the worst while still expecting the best.

— Read Is Your Business Prepared to Handle Disruptions? on ThinkAdvisor.