Welcome to Hidden Value, the column where Joe Elsasser, CFP, addresses common financial planning issues with insights advisors and their clients may not have considered.

Financial advisors may preach prudence and provide practical plans, but numbers on a spreadsheet don’t always translate into golden decades. Some clients spend too much, too soon, too often. They see six or seven figures in account balances and tell themselves that buying a new SUV each year can’t make that much of a difference, or they really would like new granite countertops for their kitchen. Such spenders may be among the most stressful clients to work with. You can observe the wrong path they’re taking, but they don’t see it, don’t care, or feel powerless to change.

Clients who disregard the speed limits you post might be the most difficult to advise, yet they also may be the ones who most need adept advice. The role of an advisor should be that of a coach. You don’t want clients to feel beaten down by these conversations; you want them to feel empowered to make decisions that align with their resources both today and in the future.

Early Warning Signs

Don’t wait to start looking for potential trouble. If pre-retirees tell you that the cost of their basic income needs (for housing, food, vehicles, etc.) is well below their cash flow, yet they still have debt as they near retirement, that’s a signal they tend to spend heavily on “wants,” with payment deferred.

Similarly, advisors may expect clients to follow a budget. However, if the client requests an excess withdrawal every year for a “one-time” expenditure in addition to his basic plan, you can expect this to be a continuing drain on his resources. Model out a budget of the last few excess withdrawals continuing into the future, and show the impact on the future ability to spend.

Combat Overspending

To prevent unhappy later years, you should repeatedly show clients the impact of overspending. At every meeting, demonstrate the future shock with real life numbers. Show the impact on sustainability: how spending now might deliver current satisfaction but impair the prospects of achieving major goals and enjoying long-term financial security.

When one of my clients compounded one financial mistake — buying a timeshare — by buying another one, I went through the numbers with him, showing the deterioration of his long-term cash flow. He would retire one day, as all clients do, and see his income drop. The future I showed him was sobering, and since then he has become a more prudent consumer.

As part of your annual review process, go over recent spending and a detailed cash flow projection for the future. That includes forecasts of major purchases, including expensive vacations, and ask clients to let you know before making significant outlays not included in their budget. Advisors can add value to their clients’ financial plans by helping them determine which account to withdraw from to fund larger purchases as tax implications can play a major role. Sometimes it may even make sense to finance a portion of a large purchase, particularly when some of the withdrawal would fall under an unusally high tax rate.

Advisors should collaborate with their clients and show them alternatives that might be better aligned with their future goals. If your clients know that you will add value by helping them do what they want to do, then they will be more open to positive coaching when what they want to do could have disastrous long-term effects. These are delicate conversations, but one of the most effective ways to handle a client on the cusp of a poor decisions is by suggesting alternatives you’ve seen other clients truly enjoy. Instead of an eight-week-long European vacation, some clients may enjoy a three-week vacation rental in Southern California to get away from the bitterly cold Midwestern winters. Providing a reasonable alternative can help soften the blow when a client’s original plan carries long-term consequences.

Consequences to Your Practice

Is client overspending a compliance issue? Will advisors be held liable if clients continue to spend extravagantly and consequently run out of savings before running out of life span? Don’t treat this lightly — client overspending can be a high risk area for advisors. Some people won’t stick to anything in their plan, then blame you for their financial failures.

Your strategy, in three words, would be to document, document and document. Keep careful records of the budgets you suggest for clients, your communication efforts to warn against going over budget, and your admonitions about the likely results. Retain copies of email or hard mail that you disseminate. Use a customer relationship management (CRM) system to store evidence of everything you have done.

Excessive spending is not good for the client or your practice. However, it is a crucial role of the advisor to help the big spenders see the long-term ramifications of their actions, and offer suggestions to minimize the impact. Ultimately, advisors should strive to collaborate with their clients, and empower them to make positive choices that will help them reach their goals.


Joe Elsasser, CFP, Covisum

Joe Elsasser, CFP, RHU, REBC, developed his Social Security Timing software in 2010 because, as a practicing financial advisor, he couldn’t find a Social Security tool that would help his clients make the best decision about when to elect their benefits. Inspired by the success of Social Security Timing, Joe founded Covisum, a financial tech company focused on creating a shared vision throughout the financial planning process.

In 2016, Covisum introduced Tax Clarity, which helps financial advisors show their clients the hidden effective marginal income tax rates that can significantly impact cash flow in retirement. In early 2017, Covisum acquired SmartRisk, software that allows advisors to model “what-if” scenarios with account positions and align a client’s risk tolerance with their portfolio risk.