Our last six months has re-affirmed our belief that everyone should have a financial life plan. As a fundamental part of our virtual business transformation to non face-to-face meetings and online administration, my company recently re-thought our planning philosophy.
From numerous conversations with people, we had learned that most acknowledge financial planning is important, but very few have done it in any meaningful capacity. The pandemic has caused them to re-think that. Something had prevented them from doing it: the fear of unpleasant discovery, the shame of copping to one’s procrastination, the embarrassment of discussing taboo topics, or a combination of these and other reasons. Whatever the cause, their resistance to do it was palpable. Its funny how a change in our normal lives can cause such a shift in our thinking.
Most people who have done substantial financial planning before did so principally in response to a crisis, such as Covid. They encountered something scary that required immediate attention. Alternatively, perhaps a spouse had become gravely ill, and the couple had not yet done sufficient estate planning. Or maybe a single parent had learned that his teenager was accepted to a prestigious university, and the parent had no idea how to finance four very expensive years of education.
The reactive nature of people presents a fundamental challenge for the financial planner. A critical part of our job is to help clients untangle their web of concerns so that they can see them clearly in terms of their level of importance and urgency. This requires us to be very forward-thinking, looking not just at the present but also months, years, even decades down the road.
A question came up in that dialogue. Sort of a hole in our road going forward. What is a financial planner to do when clients refuse to do any financial planning unless the work is viewed as both important and urgent? How do we encourage our clients to abandon their myopic ways and adopt more long-term strategic thinking and behaviour? Here’s how we approach it.
A future crisis today
Although we would never knowingly manufacture a crisis for clients, we do see the benefit in identifying one or two key elements of a client’s life to reframe as an inevitable financial challenge as a “problem” to be solved by financial planning. Too often clients with young children put off a conversation about financing higher education because the matter seems too far in the future. It’s not considered a problem; affording diapers and day care is. That short-sighted thinking is a mistake. New parents need the cold, hard facts about education costs so that they will address the problem and become early adopters of a workable solution: a very long runway of intentional saving, investment, patience, and faith in the power of compounding.
Clients and prospects alike are often skeptical of the monetary benefit of financial planning. One way we overcome their doubt is to perform a simple cost-cutting exercise. A short conversation about an individual’s spending habits may reveal obvious opportunities to cut expenses, low-hanging fruit savings that can be diverted to financing something the individual has long desired. Perhaps a modest vacation or luxury item. If a skeptic receives a tangible reward for a relatively painless modification in spending behaviour, they may be more likely to entertain a review of their comprehensive financial picture.
Gifts to loved ones
We like to tell clients that they should view financial planning as a gift to loved ones. Why? Clients will act much more quickly when financial planning is presented in the context of the financial health and stability of dependents and other loved ones. Sharing our own experiences has also helped tremendously. We will often cite our own experiences, such as a father’s passing and or a brother’s cancer diagnosis, spinning those narratives in such a way to include the perspectives of our other family members so that clients understand that our planning decisions were never made in a vacuum, They were specifically structured to benefit our loved ones. A message of care is sure to resonate with clients and get them thinking more proactively about financial planning.
The future is brighter
Perhaps the most difficult clients to win over are the carefree ones, those who love to live in the moment. These clients tend to be spendthrifts, and their loose spending behaviour only makes their need for financial planning that much greater. The good news is these clients are often idealists, and we can use their optimism to argue the merits of financial planning. Bigger and better is just around the corner if these clients will incorporate a little planning, delayed consumption, and simple risk management into their everyday lives.
The goal is to do this as seamlessly and non-obtrusively as possible. These clients won’t bite if they think their adventurous lives will be disrupted by a written document. We can utilize simple, behind-the-scenes financial tools like automated retirement contributions, cash back credit cards, and insurance policy reward provisions that, over the long term, will return great value to clients even though they may not be fully aware of the accruing benefits.
As financial planners, we need to encourage clients to address important issues before they become urgent.
Reframing topics as solvable problems, presenting easy cost-cutting wins, addressing the needs of loved ones, and adjusting our methods to suit challenging personality types can be powerful techniques to move reluctant clients in a more prosperous direction.
There is an inherent fear in financial planning that often results in the deferral of important life decisions and actual procrastination in planning. This is not a winnable strategy and, often, if it is not taken head on it can make future decisions difficult or impossible to make. We can’t anticipate what future crises may lay ahead, but planning and being prepared is critical to Keeping Life Current.