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Turning Spendthrift Clients into Dedicated Savers

May 19, 2017

This time we hear from Brandon Corso, executive director of financial planning with Fairfax, Va.-based Edelman Financial Services. He says it can be difficult to get people to change their saving and spending habits, and the earlier you start, the better.

Over time I’ve come to learn there’s one fundamental characteristic that determines whether clients will meet their retirement financial goals: whether they are good savers.

Early on in my career I had a client couple with a young daughter and son-in-law who — the parents believed — needed some financial guidance. At my first meeting with this young couple they told me how they liked to travel and go out to eat, and how they planned to continue living that lifestyle into retirement.

Those were lofty goals, especially because that young couple was traveling about 12 times a year and rarely ate a meal at home. Clearly they had income at their disposal, but it was also clear they were in no mood to save much of it. Indeed, they were contributing to their 401(k), but only 3% to max out their employer match. They had no other money invested and no plans to do so.

Even though they had the money to invest, I gleaned that they had no interest in worrying — or even thinking in a serious way — about the future. They wanted to keep living the high life while they could. So, at one of our earlier meetings, I thought I would play a little “scared straight” with them by revealing a financial projection that showed that they were on pace for a much more humble retirement lifestyle than what they had imagined. I was sure that would have an impact. But the next time I met with them nothing had changed. And this pattern continued for a few years.

I kept at it. At ensuing meetings, I showed them projections about what would happen to their finances if one of them died, or if the market didn’t perform as they hoped, or if they lived longer than they expected. Eventually they came to realize that even a small adjustment in their current lifestyle could pay big advantages down the road, and I was able to get them to commit to a more aggressive retirement plan. But getting them on board took years.

The lesson for me was that I should have come to grips with their unwillingness to save at our first meeting, and I should have addressed those issues clearly and directly. Instead of dragging out a discussion over many meetings, I should have challenged them at the outset with the unpleasant facts about retirement to illustrate why they needed to commit to a plan.

Over the years, I’ve learned there are several ways to determine a person’s willingness to save, including simply reviewing their financial history at their first meeting. That reveals a great deal. And the truth is most veteran financial advisors can get a strong sense about a client’s attitudes about money just a few minutes into a conversation. My advice is to act on those first impressions. The sooner you determine that attitude, the more successful you will be. Changing behavior is difficult, but it’s not impossible.

It’s one thing to crank out a report that spells out a detailed financial plan for a client, but quite another thing to get that client to stick with the plan. Of course, it’s not our job to ensure clients act a certain way or to police all their life choices, but if you stay in this business long enough you will have a client tell you some day: “I wish you had pushed me harder to stick to the plan.”

Having frank, early conversations if you spot trouble is one way to head off problems down the road.