Advisers’ two toughest words: ‘Save more’

It is no secret that many middle-class Americans aren’t saving enough for retirement, but according to financial advisers, a surprising number of their higher-income clients are in the same predicament and need help to turn things around.

“I see people making $600,000 a year who won’t be able to maintain their lifestyle in retirement,” said Susan C. Elser, president of Elser Financial Planning Inc.

She and other advisers said that saving is a sensitive issue, and talking with affluent clients about it often is one of their toughest jobs. To help get through to clients, advisers said that they use a variety of strategies.

Acknowledging the truth about spending and saving is the first step.

“What affluent person wants to sit down with their financial adviser and tell him that you’re living from paycheck to paycheck?” said Tim Minard, senior vice president of distribution for Principal Financial Group.

In an online survey of 633 advisers that Principal conducted in June, 73% said that living beyond one’s means is the top issue clients stretch the truth about, with level of debt coming in second. The top hindrance to improvement cited by the advisers is clients’ own fear of making changes.

Advisers in the survey offered their own techniques for getting through to clients to help persuade them to change. One said that he uses “financial-priority cards to help them rank what is important to them and help them express what their financial dreams are,” according to the survey.

For clients who are at risk, Ms. Elser sometimes prepares a chart showing the living standard they can anticipate at their current level of saving and the improvement that extra savings would create. She and others said that getting clients to form a mental picture of themselves during retirement can be a big help toward helping people change.

Hal Ersner-Hershfield, an assistant professor of marketing at New York University’s Leonard N. Stern School of Business, who specializes in how emotion and time perspective affect long-term financial decision making, has evidence that the way one thinks of oneself as an older person affects savings.

‘FUTURE SELF’

“People tend to make decisions for immediate gratification, because they are treating their future self as a stranger,” said Mr. Ersner-Hershfield, whose research uses age-morphing video technology to show people how they will look when older. “The more similar people felt to their self in the future, the more assets they wanted to save.”

For younger clients for whom retirement “is almost an abstract concept,” adviser Sheryl Garrett tries to find visualization mechanisms.

Ms. Garrett, president of Garrett Planning Network Inc., asks clients to write down the specific date on which they would like to retire so that they have something concrete to relate to retirement. She also asks them to describe where they see themselves living during retirement.

“We often use fear as a motivator, and sometimes it is overdone,” Ms. Garrett said. “A good dose of reality can also motivate them to save.”

For married clients, it is essential to get both spouses to agree that there is a need to change spending behavior, advisers said.

One client of adviser Ralph G. Adamo, president of Integrity Wealth Management LLC, took a huge pay cut when he left his job to start a new company, and he quickly ran into spending problems, in part because his wife didn’t fully grasp their reduced financial position. The client asked Mr. Adamo to run a financial model so that his wife could see their financial condition.

“She understood the finances for the first time,” Mr. Adamo said.

Not only did the change improve the couple’s financial situation, it also removed some tension from the relationship, he said.

Ms. Garrett said that she does a line-by-line examination of expenditures with all clients and explains what they can cut in order to save more and pay off debt. Clients need to feel accountable for how they manage their finances, but she doesn’t allow “shame and blame” to become part of the conversation.

“I don’t care how they spent money in the past, but once we put a plan in place, we will scrutinize everything,” Ms. Garrett said.

She said that she encouraged one couple who was considering bankruptcy to try cutting back instead. The couple was reluctant to stop making their monthly contribution to their church, but Ms. Garrett encouraged them to think of other ways they could contribute.

The couple were both avid gardeners and decided to volunteer their landscaping services in lieu of a monthly check, she said. That and other stringent cutbacks allowed them to avoid bankruptcy.

Jaime A. Hinojosa estimates that about 30% of his clients need to improve their financial profile by spending less and saving more, but many use a variety of excuses to put off a day of reckoning.

One client “is relying on the value of his stocks to go up,” said Mr. Hinojosa, president of Quality Wealth Management.

Others “think they can fix it later and they don’t face it. Sometimes they don’t know what they are spending,” Mr. Hinojosa said.

With these clients, he gives them blank budget forms with instructions to go through the last two or three months of their checkbook entries, credit card statements and other spending records to track where they spend their money.

“Sometimes they hesitate and don’t want to do it,” Mr. Hinojosa said. “I have to put some fear in them.”

One way he rattles them is by talking about clients who put off saving until it was too late, leaving their loved ones in the lurch. One cautionary tale is about an affluent business owner who died in middle age.

Despite a comfortable income, the businessman hadn’t saved much, nor had he purchased adequate life insurance.

Sometimes the hardest part of getting clients to save more is getting them to take the first step, and not everyone comes around, said Mr. Hinojosa and other advisers.

Some people “need to hit bottom” before they change, Ms. Elser said.

If and when they take the first step, the new habits can become addictive, she said.

Occasionally, Ms. Elser will fill out the paperwork to open an account with a low-cost mutual fund provider for prospective clients whose savings fall below her account minimums.

She encourages them to have money deducted from their checking account monthly and placed in a retirement account.

“You can make inertia work to the client’s benefit if you can create a situation where they have to take active steps to stop saving,” Ms. Elser said.

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