One thing that we commonly encounter with clients is that tragedy happens in everyone’s lives. Usually, when we least expect it. It’s part of our role and we are always assisting clients deal with the situations they face in their lives.
Whether it’s death, getting fired, or the end of a long relationship, clients faced with personal tragedy often have to make financial decisions even as they process their grief. Too many mistakes happen due to one psychological pitfall. I think when people are going through a loss and have to make a financial decision, a lot of the time they make decisions on a false timeline.
Dealing with grief
Depending on the scale and the nature of it, loss may disrupt a client’s life and cause them to reassess their priorities. Re-evaluating those objectives will take time but people don’t always go through that process.
If someone received a life insurance policy payout, they could end up with a large amount in their bank account. They don’t need to invest that right away. But then the bank may call them, and suddenly they feel pressured that it’s irresponsible to just leave the money there, and they need to do something.
Making uninformed decisions
One risk from acting too quickly: people could make decisions without the right information. Early in the pandemic, we had a financial transition appointment with a client who had just been laid off and given a severance. One of the first things we talked about was his mortgage. At the time, people were allowed to defer their mortgage payment but he didn’t.
The client’s colleagues insisted he should take the chance to put off his mortgage, but the client recommended that we look at his financial situation first. Even before he was laid off, he had enough emergency savings to pay for all his family’s expenses for six months. With the severance package he received, he was covered for 18 months of expenses, including the mortgage.
We asked about his chances of being re-employed, and he said he already had two interviews. One of his goals was actually to pay down the mortgage as quickly as possible. So, there was no reason to defer it.
Having a financial cushion
Our clients usually have enough of a financial cushion that they can afford to process their emotions before finalizing a decision. But in cases where a client only has a weeks long runway to restructure their spending and finances, honesty is the best policy.
If we had to explain to somebody that they have this much in their bank account and cannot afford the house. They need to be reemployed and they’ve got to move. It’s not good news, but it’s clear news. We operate better with clear information, and we’ve seen that again and again.
By meeting with a Financial Life Planner, grieving clients can get a more accurate picture of what expenses they’re faced with, how much money they have, and how long it can last. Those projections will be useful in creating a goals-based spending plan.
When it comes to grief-loaded situations, we don’t stop with a planning by numbers exercise. We often listen to clients talk through feelings of anger, sadness, and loneliness, all of which can shape their financial priorities going forward. That emotional sense-making should be made just as integral to the Know Your Client process as talking about clients’ finances.
The bottomline
In these situations, we have to recognize that clients have to take time. We have to normalize the fact that grief doesn’t take three days, and their priorities might change.
We believe we need to give our clients permission to pause, tell them their options, and tell them we’ll revisit them in scheduled visits over the next three, six or twelve months. That’s what we want for every client. And that’s the way are assisting them in Keeping Life Current.
