It sounds so simple: Help your clients meet their goals and you’ll be rewarded. You’ve done your homework and you’ve made a solid plan. Getting clients to stick to the plan is where things get tricky.
Time and again, clients make decisions or run into circumstances that hurt their ability to meet their long-term goals. Right now, the world is working through the coronavirus pandemic. Social isolation and attempts to flatten the curve have reduced many clients’ incomes and expenses, and caused an international market crash of a magnitude that we haven’t seen in decades. Clients change their minds between yearly reviews or even from one day’s meeting to the next.
COVID-19 is a dramatic example, but clients can always find ways to shoot themselves in the foot. Maybe global market changes or a personal crisis affect a client’s business. Maybe a client’s lifestyle grows along with their income. Maybe they’re too busy to see the patterns in their spending or purposefully avoid coming to terms with reality. Maybe they simply changed their mind without regard to the impact on their long-term goal. Seemingly small decisions, made time and again, can quickly throw off a decades-long plan. Whatever the reason, clients need a framework for understanding when their choices will impact their long-term plans.
Logging receipts or reviewing aggregated account information for every transaction is a waste of time for most clients. Even if they do it at first, it’s a failure waiting to happen over the long term.
Fortunately, there’s a better way you can set your clients up for success. Segregate premade decisions from day-to-day spending decisions.
For example, imagine that your client has a monthly income of $20,000. Taxes and other bills, including retirement fund contributions, consume $15,000 a month. They’ve already decided how to apportion that money.
Teach your clients to ignore the $15,000 they’ve already allocated and focus instead on how they’ll spend the remaining $5,000. Set up a checking account or credit card that’s dedicated to the places that money goes: groceries, dining out, clothes, coffee — all their daily decisions.
Every month, the client transfers the amount dedicated to these expenses into this account (or pays off last month’s credit card bill in full). Once they’ve spent the budgeted amount, they’re done for this month.
Some clients might choose to track individual spending categories. They should keep these expenses as subcategories under the day-to-day umbrella, in case this more detailed tracking plan fails.
Setting up this system is one of the best things you can do for both your clients and yourself — even better than focusing on rates of return. Giving clients a simple way to fix their cash flow helps them meet long-term goals. That means the world to your client. To you, it means referrals, more AUM, fewer cancelled premiums and better relationships.
[More: Keeping an eye on cash flow]
Nick Phillips is co-founder of Cash Flow Mapping, a tool that lets advisers help clients understand their cash flow.
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
