Creating goal-based, balanced portfolios requires a complete data set of all assets and liabilities. But it can be tough to get that data — especially when relying solely on a client’s own reporting.
For any number of reasons, clients may hesitate to share certain information with their financial advisors, such as personal debts, significant life changes or specific financial goals. Finances and money can seem deeply personal; and attitudes can be shaped from childhood, environment and experiences. Clients may feel a sense of shame about certain decisions, or feel the need to hide facts that could be relevant.
While not intended to derail financial plans, these omissions can hinder an advisor's ability to provide tailored and effective financial planning.
Here are six secrets that clients might not be telling their advisor, why it matters and what the financial professional can do to draw them out.
1. Debt Loads
Debt can be one of the biggest things that a client keeps quiet about, as it could reflect poorly on their financial management. This can include credit card balances, student loans or other personal loans.
One advisor told us about a client who had over $200,000 in high-interest credit card debt without any asset streams capable of reducing that debt. Instead, the client was hoping for an eventual inheritance while continuing to amass debt. Banking on an inheritance to wipe out significant debt is not a strong strategy, but this client felt that this was the only option to maintain a preferred lifestyle.
2. Personal Loans
Clients may also feel embarrassed to admit that they’ve made personal loans to a family member on an ongoing basis without any repayment. This could be college or post-college children unable to find a job or live on their salary. They may reason it is best to keep those matters within the family, not considering how that liability can affect an overall portfolio or accessing other tools that may help.
3. Life Events
Another set of details that clients may not immediately share are difficult life events like a job loss, death in the family or divorce. While each of these can have significant financial impact, emotional needs often cloud other realities and put finances on the back burner.
More positive life events, such as getting married or the birth of a child, may also not be relayed right away for various reasons. Perhaps in the flurry of wedding planning and cake tasting, issues like prenuptial agreements get pushed to the side to avoid potential conflict; or it’s simply in planning for celebration, financial implications aren’t front and center.
4. Hopes and Dreams
Clients might be hesitant to share specific financial goals, especially if they are ambitious or seem unrealistic. Maybe it’s a non-traveler secretly hoping to go around the world. Perhaps a client couple of two doctors secretly hope to leave their high-paying jobs to take a gamble on opening a wine bar. Sharing those goals means putting them out there, at risk for discouragement or even outright dismissal.
Nevertheless, not knowing about a certain goal makes it virtually impossible to plan for.
5. Past Mistakes
Clients may also be hesitant to talk about past financial mistakes, fearing the “I told you so” from a partner or from a professional advisor. Maybe it’s an investment that they really believed in that went south — and they don’t want to relive that loss.
Not sharing, however, precludes any chance to improve a situation or to learn from it.
6. Partner Confidences
One last secret kept: When clients are partners and don’t talk about personal finance details such as spending habits or income streams. Maybe it’s a point of contention; perhaps it’s even something that one partner wants to hide from another. Such an approach isn’t great for a relationship, of course, but it can also lead to major holes in a financial planning approach.
So what can an advisor do?
- Continue to develop a trusted, open relationship with clients by getting to know them beyond their portfolio. As clients increasingly extend their trust, they will feel more comfortable being open.
- Share why having complete information can make a difference on outcomes. Use examples such as “By not knowing about this minor interest in this business, we missed out on these tax advantages.” Examples may not be directly relevant to that individual client but can illustrate the importance of complete disclosure without making the client feel judged.
- Work with accountants or other trusted partners to ensure access to complete information that ultimately best serves the client.
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