When Clients Misbehave

What happens when our clients run into trouble and the issue we think we are dealing with is not the real one? If it’s not the real issue, our answer is not going to be the right answer.

Take, for example, one of our clients. This client has a “secret” stash of money set aside to use for early retirement. Whenever the client wants to spend cash beyond means, not only can we not suggest spending from this account, but we have to pretend it does not exist. It is the Lord Voldemort of bank accounts. We cannot use it, even though taking money from the client’s regular investment portfolio will trigger capital gains—an investment portfolio that will likely do better over time if left alone than this cash account we are not allowed to touch. The cash, furthermore, could be earning even higher rates through online savings or Treasurys.

But taxes and investments are not the real issue here.

The real issue is this: The client is facing retirement and feeling unsettled, wanting to have control over money while anxiously facing the next stage, one the client is not fully emotionally prepared for. It’s poor planning to optimize the client’s cash in this case. Sure, we can try to convince the client that keeping cash on the side is not rational. We can show the client how much it is costing. Or we can help the client get through this period to have a better chance of enjoying it.

Did you tell your kids there was no Santa Claus, or did they find out on their own? Maybe you felt it was your duty to disabuse them of the notion that some round guy traveled the world every Christmas handing out presents that were uniquely picked out for them. Maybe you were concerned that by not revealing the truth you were participating in a lie and that your children would need years of therapy to again trust you. Or maybe you let them believe until they felt ready to no longer believe.

Was the issue that you would never lie to your children, or that you wanted your children to appreciate the benefits of fantasy?

Knowing the real answers to questions like these can help you make better decisions. It’s no different with clients, who are making choices based on underlying emotional factors we often miss.

We had another client who was working with her elderly father, trying to help him get his house in order. She would eventually have power of attorney, but that was not yet necessary. The father had a large estate that was continuing to grow. We were working with him on a gifting strategy.

The client’s two brothers were in different situations. One had very little money but also no interest in it. He was living a minimalist life, and financial decisions made him anxious. The other brother was working a dead-end job, had a wife and two children, and could have used the money. Our client, the sister, did not need the money but felt responsible for doing the “right” thing (remember, there is rarely one right thing; the world is not binary).