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Help Clients Overcome Bad Money Habits

By Emily Brower Auchard December 30, 2015

Clients often come to advisors with bad money habits ranging from overspending to not saving enough to a lack of financial awareness. These behaviors can undermine an advisor’s ability to work with the client and helping clients break out of these financial ruts is a critical part of an advisor’s job — not to mention a crucial way to help clients get back on track to meet their long-term financial goals.

Today, online spending, automatic bill payment and other electronic transactions make it easier for consumers to spend money without any real awareness, notes Jacob Gold, a Scottsdale, Ariz. financial advisor with Voya Financial Advisors. Gold, who manages $200 million, focuses on educating and building awareness with his clients because he believes financial literacy is the foundation of positive financial habits.

Gold believes the first step in dealing with a client’s lack of awareness is to get them organized.

“There are many simple, free online tools that will aggregate and consolidate consumer accounts into a central hub,” he says. “With these tools clients can connect credit cards, retirement accounts, bank accounts and more, and then see where they are to keep track of their spending patterns, etc.”

Gold also counsels clients with no experience saving to try a site called Acorns, an online tool that invests spare change from “rounding up” everyday purchases to the nearest dollar. “Clients can slowly see their money go to work and experience the power of compound interest,” says Gold.

Jacob Gold

Motivate for a long-term mindset

For Kevin Phillips, a financial advisor with Naperville, Ill.-based Savant Capital Management, not saving for the “black hole of retirement” presents the biggest bad-money-habit hurdle for his clients.

“It’s easy to save for a thing like a car or vacation home,” says Phillips, who manages $125 million. “Saving for retirement is much harder because you don’t know how much you’ll need or when you’ll need it.”

Phillips has two strategies for bringing clients around to the idea of long-term savings goals. First he has them put pen to paper to review what they’re saving. Then he works with them to model future scenarios so they can clearly see how actions today will have a significant impact on their lifestyle in the future.

“The idea of living on a small percentage of their current income really hits home,” says Phillips.

After looking at the broader financial picture, Phillips then walks clients through a visioning questionnaire to get them thinking about what they want to do in retirement.

“Sometimes their desire is to have their grandchildren know and remember them, which really has nothing to do with money,” he says. Ultimately, however, pushing clients to create a concrete picture of their future helps motivate savings. “They may want to have the money to take their extended family on a dream vacation.”

Nip overspending in the bud

The flip side of bad saving habits is bad spending habits. Tom Wilson, managing director of wealth advisory at Brinker Capital of Berwyn, Penn., oversees his firm’s high net worth clients.

“It’s a myth that people with money have great spending habits,” he says. “These clients can have bad spending habits. The amounts they’re spending are just higher.”

Wilson, whose firm manages $17.7 billion, often begins his work with clients by showing them that they are spending more than they can afford, utilizing Monte Carlo analysis. This statistical tool, which approximates the probability of a certain outcome, projects returns and spending habits into the future and then shows the future probability of various portfolio values.

“It can be quite sobering to see a 50% probability of having a zero value portfolio 10 years into the future,” he says. “When clients begin to go astray I bring the Monte Carlo back out to help rein them in.”