I like to delve into clients’ emotions and feelings. People may tell me one thing initially, but upon further questioning may see that their first response wasn’t emotionally true.
One example of that came up in a recent meeting with a couple who were getting ready to retire. Of course, they had worries about what they should do.
They wondered if they should move all their money into conservative investments. They floated the idea of moving everything into an annuity — an option they believed carried no risk.
When I asked them about longevity in their blood lines, I learned they each had at least one parent in their mid-90s. I then explained to them how we are in a low-rate environment and talked about the danger that their annuities would be capped at very low rates of return that likely would not keep pace with inflation or taxes.
That’s where my emotional questioning began. Let me summarize our conversation:
Question: The chance of your living another 30 to 40 years is extremely possible. How do you feel about that?
Answer: That we won’t have enough money.
Q: How does that make you feel?
A: Afraid and very uncertain.
Q: When you started work and got married, what were the rules?
A: Save money in a retirement account, have children, and make sure they get good education.
Q: What are the rules in retirement?
A: We don’t know of any other than just making your money last.
Q: If all of us are living longer, and you know that certain health care costs and taxes are going up, why would you not want to grow your money? Why would you want to buy this financial product that is not designed to keep pace?
A: That’s just what we were told. And that’s what we thought you did as an adviser.
Q: Well now that you are here, how do you feel about this happening?
A: We are very uncertain and really don’t know what to do!
Q: Has anyone worked with you to put together a plan that is balanced with investments and also has an income component that is adjustable for you?
Q: If you could become more educated on a balanced plan and how that may help you navigate the next 30 years, how would that make you feel?
A: It would make us feel like we have a chance to succeed.
When clients say that they do not want to lose any money, my response is, “Okay, but how do you feel about not making any money?” They don’t like that idea either.
In today’s marketplace, “no risk” equals minimal return and loss of purchasing power.
It is very important to educate clients on current economic conditions and teach them that calculated risk is worth taking. The average retiree who has a net worth of, say, $500,000 to $1 million either falls prey to annuity salesman or is so shell-shocked from 2009 that he or she only trusts CDs.
There is a real need to educate clients on how rates work and why the market have been the place to be for the past six years. Retirees also need greater clarification on annuities in order to understand their income and growth restrictions.
Asking questions to gauge risk is key to financial success. More importantly, it is key to building a sound relationship between adviser and client.
I always ask my clients, “In the next one to two years, what do I need to make happen to assure you that you have made a good choice in working with me?” These answers vary, but generally speaking, clients want to know that they are staying on the right path and are not falling behind. Keeping in touch with clients and knowing how they feel emotionally is paramount to them feeling good about their adviser.
Matt Jehn, CFP, is managing partner of Royal Oak Financial Group, which offers small businesses and individuals in Columbus and Lancaster, Ohio a complete financial solution through professional accounting, tax and wealth management services. Jehn, who earned a degree in family financial planning from The Ohio State University, enjoys helping his clients grow their businesses by educating them on the meaning behind the numbers.