Case study: Joe and Selma call their advisor, Brenda, from Florida
Joe and Selma want to buy a vacation property in a nice Fort Lauderdale neighbourhood, and they ask Brenda for advice on whether or not they can afford it. This puts Brenda in a tough spot. If the client is already committed emotionally to buying the property and she tells them it will negatively impact their finances, the advice may not be well received and could potentially harm their relationship.
Subsequently, if Joe and Selma ignore Brenda’s advice and still go ahead with purchasing the property, Brenda will have to adjust their financial plan accordingly. She’ll need to explain to them how the purchase has had unintended consequences on their other goals, which may lead to further disappointment down the road. Not surprisingly, it could cause even more resentment towards Brenda, misdirected though this resentment may be.
As you can see, there are many potential risks if tough money conversations with clients are not handled properly. By applying the strategies in this blog, you can better navigate difficult financial discussions with your clients to help minimize risks for both parties. Here are seven steps to consider taking:
1. Prepare and plan
Before any difficult conversation, prepare yourself thoroughly. Review the client’s financial situation, goals and past discussions you’ve had. Anticipate potential concerns, questions or objections that might arise. Write down your strategy for how you will handle the discussion. Anticipate how a conversation may play out and prepare your responses accordingly.
2. Develop a personal relationship first
Even as your client’s trusted advisor, broaching personal money issues can be difficult. Think of your relationship as a continuum ranging from strictly business to mostly personal. The further you are along the continuum towards mostly personal, the easier it’ll be to ask your clients about personal money issues. Just to be sure to “read” your client and never push too hard to establish a personal bond if they seem reluctant or uncomfortable.
For example, let’s say you’re planning to speak to a client about their overspending tendencies, but your past conversations have focused mostly on investments. The client may not be receptive to discussing this issue and might feel you are overstepping your bounds. However, if you work to nurture a more personal relationship and then broach a sensitive money topic, your client is more likely to understand you’re asking because you care. This also means when you give clients advice that’s hard for them to hear, like the scenario described above, clients will be more likely to believe you’re sympathetic to their situation, and are only looking out for their best interests.
To develop a more personal relationship with your clients, start by showing genuine interest in their lives. Rather than asking your client how things are going, be more targeted and ask questions such as: “How are you feeling now that you’re officially an empty nester?”, or “Are there any financial goals you’ve always wanted to reach, but have never voiced or even thought of as a possibility?” These specific questions may open the door to a deeper money discussion and potential adjustments to their financial plan.
3. State your intentions
Having an established personal relationship with your clients may still not be enough to encourage them to open up, so it would help to explain your full intentions so you maintain their trust. For example, you can say: “As your financial advisor my goal is to help you become financially secure, because that security will mean you won’t have to worry about money.” This type of explanation will help them grasp your motivation for asking these probing questions.
4. Stay neutral and objective
It’s important to remain neutral and objective. Avoid passing judgment on your clients’ financial decisions or behaviour. Instead, focus on conducting deeper conversations and strive to be an unbiased facilitator in the process of client self-discovery. For example, ask a question like: “How does spending money make you feel?”, or “How does your spouse’s money behaviour differ from yours?
5. Address emotions
Since money is often tied to emotions, expect clients to have strong feelings about their money habits. Acknowledge and validate their emotions, even if you don’t agree with their perspective. Let them know it’s normal to feel this way, but at the same time ensure your clients are aware of the implications of their behaviour. For example, if a client’s overspending has the potential to negatively impact their future goals, ask a question like: “How can your decision to buy a vacation property impact some of your other plans around retirement?” Talk it through rationally with your clients, carefully guiding them toward the conclusions you want them to reach.
6. Respect boundaries
Understand that some clients may not be ready to discuss certain topics or change their behaviour overnight. As we explored above, finances can be loaded with emotions. Respect their boundaries and pace the conversation accordingly. Offer your support and let them know that you’re available whenever they are ready to discuss the issue further.
7. Follow up
After a difficult conversation, follow up with your clients to check on their well-being and address any lingering concerns. Reiterate your commitment to their financial success and remind them that you’re available for ongoing support and guidance.
All of the strategies above can be used to help handle difficult money conversations. Be aware, however, that it requires a balance of emotional intelligence, technical expertise and strong communication skills. By approaching these conversations with empathy, respect and professionalism, you can strengthen your client relationships and help them achieve greater happiness and financial independence.
