Last week I received an email from an advisor out West. I actually had the pleasure of sitting down with her for a coffee back in April when I was on a speaking tour. She had read my latest article and was reaching out to say she agreed advisors do need training in order to fully integrate debt and cash flow management in to their practices. She also expressed frustration with learning how to get clients to take responsibility for their own financial reality.
The advisor gave an example of trying to help a client who in hindsight probably didn’t want to be helped. Well, at least that client wasn’t looking for the kind of help that didn’t involve a fairy god mother and a choir of small woodland creatures singing a rendition of “Bibbity Bobbity Boo”.
This advisor is not alone. I get a fair amount of feedback from others who have trepidations about getting taken for a time wasting ride if they help clients with debt. I don’t blame them. Hey wait, don’t we risk getting taken for a ride with every product or service we offer? In fact didn’t we get led down the garden path fairly frequently when we were rookies? How many quotes did you labour over in the hopes of a big sale? How many investment policy statements did you prepare in the hopes the client would choose you? I know I did so often. I remember working six days a week and every evening for the first year ready and willing to be the preverbal door mat to any client that might buy something, maybe, someday.
We learned though didn’t we? We learned or we worked our way out of the industry. If you are still working like that, you might be on the brink of a nervous breakdown. For most who have established a profitable business, we know when we were getting the run around. We gain confidence in our abilities and aren’t led astray. Our time is valuable and we don’t put up with people who want five hundred quotes from every advisor in the land for a $20-a-month term policy.
Debt is no different you just need to build confidence by gaining some experience and training so you can spot the time wasters. To get you started here are some do’s and don’ts to keep you in control when you journey with your clients to the other side of the balance sheet.
DO set expectations and value up front. If you are going to integrate debt and cash flow in the planning process then be sure to inform new and existing clients of the immense value your additional effort will make to their planning experience and results.
DON’T tip-toe around the subject of debt until after you get the client and then try to bring it up. No one likes surprises unless the surprise involves cake.
DO have forms and process for collecting information on debts, income and expenses. Having a standardized approach will help you keep on track with the meeting and the plan. The more information the better when it comes to debt.
DON’T make judgments about clients’ current habits. The fact they are willing to share the information with you is a sign of readiness to make some change. If the client feels you are judging them they will have trouble trusting you.
DO require effort of the client. Tell your client up front that planning in this area requires their involvement if they want the results they’ve got to be part of the process. Send emails in advance of appointments reminding them of the information they are required to bring with them. Provide client forms and spreadsheets for them to fill in details in advance whenever possible.
DON’T be afraid to call the client out. If you’ve been up front and talked about value and set out the effort expected by the client and they still don’t provide complete information in a timely fashion; this is sign. The sign says RUN. Clients who agree to something and then don’t do it can be complacent nightmares later on let them help someone else lose sleep.
DO provide guidance on how much a client can set aside for spending in a given month. Clients are often just reacting and have never set about planning spending before. They can also use guidance on which categories they should use that spending money on.
DON’T attempt to recommend or suggest exactly what client should or shouldn’t spend those limited dollars on. For example; recommending a client shouldn’t buy a coffee everyday on the way to work is a no-no. You help them with the amount and categories but they set their own priorities.
DO use cash flow software to assess clients spending patterns.
DON’T spend hours hunched over months of bank statements tallying clients expenses manually.
DO start talking with clients about debt as early in the relationship as possible. Waiting until a client comes to you with an issue is asking for trouble and it makes you seem reactive.
DON’T use the fact a client has been with you for some time to avoid talking about debt with them. Existing clients just require a slightly different approach so think about what to say and start saying it.
DO be positive about how much clients can do to make the most of their money by making debt efficient and keeping spending under control. This is the one thing in the financial world they can control!
DON’T let your ego convince you that helping your clients stop donating excess dollars to their lenders in the form of inefficient interest, and providing guidance on spending limits is beneath you. You risk making the client think that their total needs are beneath you which could make them feel like you don’t really care.
DO recommend clients close store cards when they don’t use or need them. Store credit cards credit departments are often run by companies in other countries. I’ve seen many a clients’ credit mutilated by a department store card payment mishap. People often get these cards to take advantage of a “never-never” deal or to get 10% off on that day’s purchase.
DON’T ever recommend a client close a major credit card. They can always get their account downgraded to a no-fee version but cancelling major credit cards can erase all the good history established related to that card. Remember just because the account is open and keeping the history alive doesn’t mean it has to get used.
DO start the planning process with cash flow in mind. There isn’t an aspect of financial planning that isn’t affected by cash flow so why not start with it? A wise man I know says “Control the cash-flow, control the plan.”
DON’T treat the debt and cash flow like an afterthought because then it will become an afterthought. When the going gets tough it will be the first part of the process you let slide. The problem with that is this is the only area you can be truly proactive regardless of the market or other things you can’t control. If you let it go when the going gets tough, your clients will get going somewhere else.
DO realize that the best clients to offer debt and cash flow advice are good quality clients who are on the road to financial independence. You will enhance their client experience with you and not only get them to their goals far more efficiently but attract their like minded friends to your practice.
DON’T think that debt can cash flow advice is charity work. This subject matter takes work and when it comes for free it will hold no value. People who are in really rough shape have other resources such as credit counselors and trustees in bankruptcy to access.
Any advisor who’s been in the industry for a few years has learned already that if you don’t value your own time, your own expertise, or your own advice no one else will. It’s easy to let those old feelings of insecurity creep back in when you tackle a new area of finance; but don’t do it. This is a lesson you don’t need to learn twice.
Start off on the right foot by establishing value from the beginning of the debt conversation. It might involve taking a good look in the mirror and accepting that value yourself. At first you might have to override a little SRC, that’s all!