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.
House-passed measure would let fraud victims deduct losses and waive early-withdrawal penalties on stolen retirement funds.
Anthropic's Enterprise plan offers advisors stronger data controls — but smaller RIAs may struggle with the cost.
Partnership with DPL adds Jackson and Protective to insurance marketplace as fee-based annuities gain traction with fiduciary advisors.
Morgan Stanley is one of the leading wealth management companies in the country.
South Carolina and Bay Area advisory teams join the WPCG-backed national platform as RIA dealmaking hits new highs.
Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income