Editor’s note: Bryce Sanders is a longtime columnist with Rethinking65. Read more of his columns here.
Bryce Sanders
I have a confession to make. There was a time when I never opened my brokerage account statements. I would put the thick, sealed envelope aside. It would go on top of the other reporting statement envelopes I set aside to send to our accountant. The financial crisis of 2008 cured me of this bad habit. I don’t think I was alone.
From that point forward, I would open the envelope upon arrival, pull out a notebook and handwrite the value of every account on a table, including the portfolio total and the gain or loss from the previous month. Why write by hand instead of using an Excel spreadsheet? It makes more of an impact.
How can you get your clients to pay attention? Should you be encouraging them to be more actively involved with their investments and finances? Isn’t all their money in managed accounts? As their advisor, you will be calling if anything needs attention. Won’t bringing them into the picture encourage second guessing?
Your client needs to take ownership of their personal finances. Imagine if your child borrowed money from a friend, then refused to pay it back. Their rationale was “I don’t have the cash.” You would explain they need to take responsibility. If they don’t have the cash, engage with the friend, explain the situation and work out a payment plan. The same logic applies to paying attention to their investment portfolio. They cannot assume they will have enough money to retire if they don’t keep an eye on how their investments are doing.
How should clients be proactively involved with their personal finances?
Tally monthly portfolio values
This feeds into understanding their net worth, too. If they experience a month when values plummet sharply, they might cut back on their discretionary spending. On the positive side, they might have heard news reports about the market plummeting. (It doesn’t go up or down anymore. It soars or plummets.) They might be anxious. If they track portfolio values, they might see their decline is less severe, thanks to your focus on rebalancing their asset allocation.
Write out a budget for each month
Bills come in on a regular basis. They need to know where their money goes, relative to the income they earn. If they are spending more than they earn on a consistent basis, this means they are either going into debt or leaving bills unpaid. Unlike that friend and the unpaid personal loan, neglecting to pay bills damages your credit rating.
Set aside money for your monthly overhead expenses
We have certain bills that are monthly automatic debits. These include home insurance, medical-plan payments and the wireless bill. These charges will be the same, month after month. Your client needs to have this money set aside in their checking account at the start of every month. You need to know what your monthly “nut” is.
Plot out major outlays on a 12-month calendar
Does your client make quarterly tax payments? Note them on a page-a-month calendar. Do they pay property and school tax bills on a schedule? (This will be because they paid off their home mortgage.) Plot these on the calendar. Do they get a discount if they pay some bills early? Note that too. Now your client knows when big bills will be due, instead of getting surprised on those months.
How will vacations get paid for?
It is so easy to put things on credit cards. If you make the minimum payments promptly (and carry a balance) the credit card companies love you. They might “reward” you by extending you more credit. It makes more sense to anticipate the vacations you plan to take, estimate the cost and set money aside each month. This is like your own private Christmas club account.
Do not take on debt unless you have a plan to pay it down
Some people go through life spending more and more on credit. They service the debt, with no real plan to pay it off. If you rationalize “That’s what the government does” remind yourself “You are not a government!” If your plan is to use the windfall from your annual bonus to wipe the slate clean in January, that is fine. If you don’t have a plan, get one before you run up more debt.
Assign a budget for holiday shopping
You have heard stories of people spending lavishly in December followed by the bills rolling in during January. Many of us want to be generous at Christmas. Instead of spending without thinking, assign each person’s gift a price point. You will get creative. Your friend should appreciate the gift just as much. You won’t get buyer’s remorse in January.
Subscribe to a good financial news publication and pay attention
It is easy to get distracted by sensational headlines from online news stories or TV news programs. They seek to create a sense of urgency. Put another way, they can increase your anxiety and drive you nuts. A seemingly logical defense is to ignore the financial news entirely. That “head in the sand” approach is just as bad. Subscribe to a mainstream financial news channel. The Economist magazine is still widely available in print for, the Wall Street Journal and Barrons have reputations that precede them. Take time to read, or at least flip though every issue. You will absorb enough to have a balanced picture of what is going on in the financial (and geopolitical) world, minus the hysteria.
Here’s an analogy that may work with some clients: Imagine you bought a plant. You put it in your outside garden. You would not forget it, assuming it would rain and get sun from time to time. You would water it, prune it and give it attention. Your investment portfolio is your plant. The sun and rain are provided by your financial advisor. You still need to give it some attention if you want it to thrive.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon.
