In the quest to get clients to spend less, advisors may find themselves looking for ways to handle a marriage muddle without offending either spouse. Barbara Steinmetz, a CFP licensee who runs Steinmetz Financial Planning in Burlingame, Calif., is working on a detailed, written financial plan for a couple who have been married for five years and have a four-year-old son. The 50-year-old husband, who received a $900,000 inheritance a few months ago, hopes to retire from his $85,000-a-year job in about five years. The couple would also like to send their son to a private school, and accommodate the 44-year-old wife's desire to gift some of their newly found wealth to relatives.
"An inheritance of that size is not a lot of money in this part of the world," says Steinmetz. "I can show them fairly quickly that if they keep spending the way they do, they run the risk of running out of money."
But numbers are one thing, and emotions another. "He admires her generosity, and doesn't want to upset her or question her spending," says Steinmetz. "What I need to do is reinforce the idea that all things we do in life involve choices, and do it without busting their self-esteem."
From Advice To Action
While clients often may need to make lifestyle adjustments, getting them to move in that direction requires providing advice without sounding like a taskmaster, or a salesperson motivated solely by the desire to divert fun money into fees or commissions. Below are some techniques that planners have found useful.
Hit a "hot button." "Everyone has a hot-button goal that makes them want to save," says Steinmetz. "For my son and daughter-in-law, the vision of buying a house motivates them to put money into their house account every month." She finds that quantifying what it takes to reach goals also helps. "If you tell someone they won't be able to retire early, that only discourages them," she says. "If you say you can retire in five years instead of three, and here's what you need to do to make it happen, it makes the goal more real and reachable. And if you know a client well enough, you probably have a pretty good idea of what will get them fired up and what will offend."
Personalize budgeting advice. Some advisors find the classic advice of drawing up a detailed budget to see where money is leaking scares people into inaction. "If you tell people they have to write down each and every expenditure and draw up a detailed budget, they just won't do it," says Dollard. Steinmetz agrees that being too restrictive about expenditures often creates a backlash. "If I say, 'You're going on a diet and will never be able to eat chocolate again,' you'll run for the chocolate," she says. Instead, Dollard asks clients to separate discretionary and non-discretionary expenses, and to do an honest assessment of what they really need and what they can live without.
Others may need a more disciplined approach, particularly when spending issues persistently derail personal savings. A relatively new entry into the budgeting software arena is Mvelopes (mvelopes.com), a program that allows users to track expenditures as they make them, rather than after the fact. Earlier this year, Mvelopes began selling multiple copies of the software and an accompanying book to financial advisors. The goal for advisors, says vice president of marketing Dave Neddo, is to distribute the materials to clients or potential clients who just can't seem to fit saving and investing into their budget plans. "If the system can recover 10% of someone's income, the money that would have flown out the door can be diverted into investment products or services," he says.
Go automatic. Putting in place an automatic investment plan removes temptation. "It instills discipline very quickly," says Pareto. "If someone commits to not having that extra $800 a month, it becomes easier to re-shape spending habits."
Look at the total picture. Financial advisors who haven't paid much attention to someone's total financial picture, then suddenly take an interest in budgeting matters, run the risk of sounding like they're going into sales overdrive. "Putting a financial game plan in place is important whether someone needs to cut back spending or not," says Leo Pusateri, President of Pusateri Consulting and Training, Buffalo, N.Y. "You need to take a holistic approach from the beginning."
Show you're on their side of the table. Showing empathy instills the kind of trust that helps translate advice into action. "It's a tough time for a lot of people out there, and they need to know that you're on their side of the table," says Pusateri. "Ask good, penetrating questions respectfully, rather than rattling off what they should do. Before people adjust, they need to align."