1. Financial Advice Is All About The Numbers
Even The Numbers Are Not About The Numbers
Many people equate financial advice to some mathematical formula about determining what stocks, bonds or mutual funds to invest in. Then they watch these investments and buy or sell based on how their prices rise and fall. This perception is a more accurate description of a mutual fund manager rather than a financial advisor who is managing an individual’s money. When your client is sitting across the table from you and investing for a purpose, his future depends on you as the advisor doing your job.
So let’s start with the “simple” scenario of a couple who is in their early fifties and need their portfolio managed so they can retire comfortably. These numbers turn very human, and very emotional, quite fast. To begin with, how long will this couple live? Imagine being the advisor and having to look at this couple and ask in one way or another, “So, Mr. and Mrs. Jones, when will you both die? I have to understand how long the money needs to last, after all, and your life expectancy needs to be estimated.”
This question used to be pretty simple years ago, when life spans were rather fixed and did not change much. Most European countries as well as the United States kept age 65 as the standard retirement age. Today, however, modern medicine is changing so fast that big jumps in life span are likely. That needs to be factored in, because running out of money in retirement is one of the basic concepts every advisor and investor seeks to avoid; the subject makes for an emotionally charged interaction.
A related issue is the clients’ health. Having these conversations with a client can be difficult, especially if the client is also facing serious medical issues. Financial advice becomes an emotional journey because the things people use their money for are human and affect their loved ones.
Let us discuss a not so simple question your advisor will ask you, assuming you have children: “Where do you want your kids to go to college?” Saving money now, possibly affecting your retirement savings, is going to factor into what kind of university your children go to. How much to save, what rate of return to assume the college savings account will generate and what financial aid programs will exist in the future, are all questions that can generate an enormity of emotions. Moreover, most couples will have strife and anxiety and argue about saving for college, which adds to emotional angst.
Non-Numerical Advice Issues Are Emotional
The dreaded life insurance talk: For advisors, it’s like the sex talk with their kids. Every parent dreads it and really hopes the high school guidance counselor or some documentary handles it before they have to. Advisors hate the life insurance talk because their clients resist it so much. Over 30 percent of American families do not have life insurance, according to LIMRAs 2016 Trends in Life Insurance Ownership study. Life insurance is sold—not purchased—because people hate talking about their death. It is wildly frustrating for an advisor to hammer into their client’s head that the client needs life insurance because if they die early, their family is screwed and there is nothing worse than making that mistake. Even after the heartfelt plea, the charts and the horror stories, 30 percent of clients refuse to follow through. If the advisor does their job correctly, emotional stress from the life insurance talk should make the consumer very uncomfortable until they actually sign the contract and make the first payment. Very emotional indeed, but one of the basics.
Your parents, if alive, are an emotional topic. Who will take care of them as they age? Do they have the money to have in-home care? Did they prepare for someone taking care of them? Are they going to move in with you? Are they going into a home? Will the guilt of any of these issues create incredible anxiety for you? Will this topic impact your marriage? Is the shoe on other foot, and are you the reader at an age where you do not want to burden your children? These can be very complex issues that involve law, taxes, investments, but more so, emotional issues of how to grapple with the decisions to make.