What advisers have to do when clients lie

Call it what you please: fibbing, shading the truth, creating a false impression, withholding, omitting or telling deliberate out-and-out whoppers. Misstatements clients make to their planners run the gamut from mere oversights to intentional cover-ups.

Sometimes clients may even be lying to themselves by rationalizing their spending habits or lack of financial discipline.

“Men especially like to be seen as the stereotype good provider, and will tell the planner they have all their debts under control,” said Neal Van Zutphen, president and senior partner at Intrinsic Wealth Counsel.

Some subjects clients lie about include excessive spending, gambling, infidelity and substance abuse. While most “stretches” are less stark, Paul Auslander, director of Financial Planning at ProVise Management Group, recalled a client who was a victim in a serious car accident. It transpired that the client, a surgeon, had been maintaining an entire separate family in another part of the country.

Men tend to lie more than women about financial well-being — 42.1% versus 37.6% — according to a survey of 1,254 respondents, conducted by CreditDonkey.com, a credit-card comparison and financial education site. However, women are less truthful about debt, and both sexes score around the same for truthfulness regarding amounts spent on purchases.

WHY LIE?

A host of reasons prompt clients to deceive their advisers, even when that behavior ultimately goes against their own interests for constructing an optimal plan. Fear is a prime motivator.

Kathleen Kingsbury, founder of KBK Wealth Connection and author of “Breaking Money Silence,” describes one client who was hiding cash out of concern over a potential lawsuit. He was even misleading his spouse because he did not want to worry her.

Shame is another emotion that drives clients to avoid any perception of being judged. “Clients want to be seen in a positive light by those from whom they seek advice and who serve as an authority on their money behaviors,” noted Mr. Van Zutphen.

Christine Haviaris, founder of TTR Wealth Partners, added that stress increases the likelihood that clients may evade or falsify. One client of hers always begins inaccurate statements by apologizing, as if measuring herself against a bar in her own mind. “She is doing the best she can, so I try to maintain that space for her,” said Ms. Haviaris.

It is not unusual for clients to embellish their net worth, importance or position. Mr. Auslander sees that kind of self-promotion particularly among clients who share a common social circle, like a church or country club.

As a corollary behavior, however, others clients, especially those who have been wealthy for a long time, may downplay their assets; they may prefer to shrink from becoming targets for charitable contributions, or possible litigation. Mr. Auslander said that in Florida, where he works, “We see doctors driving to their offices in modest cars and saving the Porsche for weekends. They figure they are less likely to be sued for a fender bender.”

Another reason to understate wealth is to maintain the ability to diversify among several planners. Advisers, however, rightly object that this makes holistic planning more difficult.

“We do have clients with some assets elsewhere, but we prefer to know about assets under other management, to make sure we’re serving their best interests,” said Jeffrey Roof, president of Roof Advisory Group.

Still, it might be naive to expect that a client would reveal everything in their first meeting; also, a more gradual disclosure may even be a good protective skill. It is reasonable for some clients to proceed cautiously, especially early on in the adviser-client relationship, and perhaps give the adviser just a portion of their holdings.

Lastly, never underestimate the force of greed. While it is rare, according to Mr. Van Zutphen, he added that some of his clients have deliberately hidden other accounts as a stealthy way to mimic his trades.

THE BARE TRUTH

When a patient consults a physician, the doctor might ask them how much alcohol they typically consume per day. Sometimes three glasses will shrink to two. As a planner, however, you must be able to untangle the facts and ferret out the truth without a blood test.

A culture of openness starts with the first meeting. Mr. Roof’s firm insists on a long client onboarding and introductory process to develop mutual trust. “We interview them to ensure we have complementary philosophies and objectives,” he said. Yet you may need to respect clients’ preferences for multiple accounts.

Having practiced as a CPA for 25 years before becoming a planner seven years ago, Ms. Haviaris used to gain a transparent view of all her clients’ holdings. Realizing that those account holders trusted her with issues they might not disclose to an adviser, she intentionally created a model to preserve that fiduciary rapport, as a fee-only professional.

When an adviser’s antenna goes up, what is the best approach for confronting cognitive dissonance in a client? Above all, never play “gotcha” with the fibber. It may take some finesse to backtrack, but the better tactic is to act as if you haven’t noticed the discrepancies. Clients are then positioned to rephrase, by offering clarification.

Ms. Kingsbury believes in falling on her sword, “to let the client save face and move the conversation forward.” She acknowledges that most people will initially be offended if you let them realize you have spotted an inconsistency.

While advisers often work in black and white: numbers, financial plans, interest-rate risk, interactions entail a grayer area of gently nudging and challenging clients. It’s not about being right or winning. She urges advisers to “be a coach and ally, rather than an expert who acts as judge and jury.”

TELLTALE SIGNS YOUR CLIENT MAY BE HIDING SOMETHING

• Avoiding or changing a particular subject

• Inconsistencies

• Too much detail

• Fidgeting

• Hiding mouth or eyes

• Throat clearing or swallowing

• Change in voice, speech patterns or language

• Pause or delay

• Gesticulating

• Grooming gestures

Vanessa Drucker is a freelance writer.

Related Topics: Client Servicing