Client Wants To Crack $300K Nest Egg

(Dow Jones) When Bill Losey got together with a new client last September, the meeting was not unlike hundreds he had had in his 20-year career as a certified financial planner.

The client, a 50-something woman who had been "downsized" recently, was at a crossroads. She had built a $300,000 nest egg but wasn't ready to retire--professionally or financially.

"She knew she needed to work and save at least another 10 years," says Losey, who is managing member of Bill Losey Retirement Solutions LLC in Wilton, N.Y. "The upside of the layoff was it made her take stock in her interests."

She had just begun studying to become an aesthetician, which is a licensed skin-care specialist--a big leap from her previous career as a public school teacher. Taking into account the client's new career goals, Losey worked with her to map out a strategy for investing her current assets, trimming debt and expenses from her existing budget and, finally, either seeking employment at an established spa or renting inexpensive space in which to start her own practice.

But just when Losey was putting the finishing touches on the plan, the client turned everything upside down.

She called and casually mentioned that she wanted to open her own business in a $175,000 Victorian home. She planned to buy the place outright using her retirement savings.

"My jaw dropped," says Losey. "She had fairly limited savings to begin with, and between the house and start-up costs she was going to go through her savings in a year's time.

"I told her that I supported her as a person, but I did not support this decision," he recalls.

The client insisted on the move. And later that week, after another futile phone call, Losey found himself wide awake in bed. Yes, his fee was based on assets under management and he would be effectively losing a client, but that isn't what was keeping him up. Rather, he couldn't stand being privy to what he describes as "one of the biggest financial mistakes of this woman's life."

Not only did the client's new plans jeopardize her already precarious retirement, but they flew in the face of what she had originally told Losey--that she wanted to be more disciplined in how she managed her money.

After tossing and turning, Losey got out of bed in the wee hours to gather his thoughts in a letter to the client. "I needed to show her how upset I was about the decision, but I needed to do it in a professional manner," he says.

In the letter, he reiterated the strengths, weaknesses and goals they had talked about, and then explained why investing in a building contradicted everything they had discussed. "I used her own words to remind her of how she was preparing to make the very financial mistake she said she wanted to avoid," says Losey. He ended the letter by saying he had no choice but to terminate their relationship.

Losey expected never to hear from the client again. But, much to his surprise, the client took his letter to heart.

"Over the weekend she read the letter, talked with her partner and decided to stick with the original plan," says Losey. In fact, rather than resent Losey's honesty, she has thanked him for giving her what she said was a "kick in the behind."

Now, the client is finishing her training and setting up shop in rented space. "Instead of spending $200,000 to buy a building, she's spending $200 a month, and with a month-to-month lease," says Losey proudly.

It was the first time he had delivered that kind of ultimatum to a client, but he knows he would do it again. "We have a fiduciary responsibility to do what's right for the client," says Losey. "Even if it means telling them what they don't want to hear."