Don’t make friends with clients

Sandra called out of the blue and wanted to see me again. I cringed, guessing what she would be coming for. Although she was a talented musician, she had been underemployed for almost a year. She’d been in to see me already twice to claim mea culpa and withdraw significant funds from her retirement plan to cover her living expenses.

My fears were justified. Once again, Sandra told me she was awash in debt. Bills were streaming in and even with her paltry EI income, she was going backwards by $2,000 per month. In spite of her reduced income, she hadn’t reduced her expenses; in fact they’d grown above her rate of spending when employed. When I raised this issue, she countered that she expected to find work soon and so had not reduced her spending.

But all her excess free-time had enhanced the temptation to shop and spend. Now, a year into unemployment, her EI was about to run out and she had accumulated $32,000 in debt among credit cards and lines of credit. Combined with a car loan and a mortgage, she was in hot water.

Clearly she once again wanted me to crumple and allow her to raid her long term savings. Recognizing that I was being asked to enable this breakdown in discipline, I also saw there was little choice. The debts needed paying, but I also decided I had to do what was right for this client and advocate for some long-term goals. A compromise was in order.

I agreed she could tap her savings, but only to pay off only the most pressing and expensive debts. I wasn’t going to let her destroy her future in order to buy her time to be picky about work. We reviewed her debts and the payments she was supporting and looked at the budget. We found ways to reduce payments on lines of credit and other cost-cutting measures.

But it wasn’t enough, so I delivered an ultimatum: Sell your car or your house. You cannot afford both right now.

Grudgingly Sandra agreed to sell her car, which was quite new and would both fetch a reasonable price and retire her largest monthly expense. With the car loan and short term debt payments out of the way, Sandra had a chance to make it.

Now, I could have allowed her to keep on raiding her RRSP to cover her spending, but our clients hire us for more than our knowledge and our fidelity. They hire us to help them make progress, even if it places us in their path from time to time. By standing up to clients when they’re doing things that will derail their goals, we risk the relationship but ultimately earn their long-term respect.

In other words, it’s our job to open their eyes to what they don’t want to see.

During the past year’s market crisis, most advisors have found themselves defending well-established long-term investment plans. In some cases, we failed to help our clients make the right choices, but for those we succeeded in calming and reassuring, the recovery has served clients well. Whichever way clients proceeded, we at least provided them with a space for sober thought. Those who listened will now agree that you gave the right advice and appreciate your strength of conviction.

Standing firm for our clients’ goals and commitments isn’t something that’s taught at financial planning school. But it’s a major part of our job – one that often separates the most successful advisors from others.

Our job is to ensure clients carefully consider their financial decisions and then help them be realistic about the potential outcomes. When clients like Sandra irrationally lament, or croon with greed, it’s up to us to play the counterpoint and safeguard their best interests.

• Michael Berton, CFP, RFP, CLU, RHU, a Financial Planner with Assante Financial Management Ltd.

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