MONEY behavioral finance

A Financial Planner’s Most Important Job Isn’t What You Think It Is

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Helping people who are panicking about money is more important than a particular plan or a piece of investing advice.

In the past few years, many of us in the financial planning profession have been coming to terms with a difficult truth: Our clients’ long-term financial success is based less on the structure of their portfolios than it is on their ability to adapt their behaviors to changing economic times.

An increasing number of financial planners are awakening to the fact that our primary business is not producing financial plans or giving investment advice, but rather caring for and transforming the financial and emotional well-being of our clients. And at the very foundation of financial and emotional well-being lies one’s behavior.

I’ve come to understand this over my own three decades as a financial planner, so I was pleased to see the topic of investor behavior featured at a national gathering of the National Association of Personal Financial Advisors in Salt Lake City last May. One of the speakers was Nick Murray, a personal financial adviser, columnist, and author.

“The dominant determinants of long-term, real-life, investment returns are not market behavior, but investment behavior,” Murray told us. “Put all your charts and graphs away and come out into the real world of behavior.”

This made me recall similar advice from a 2009 Financial Planning Association retreat, when Dr. Somnath Basu said, “Start shaking the dust off your psychology books from your college days. This is where [the financial planning profession] is going next.”

Most advisers will agree that, while meticulously constructed investment portfolios have a high probability of withstanding almost any economic storm, none of them can withstand the fatal blow of an owner who panics and sells out.

This is where financial advisers’ behavioral skills can often pay for themselves. Murray, who calls financial planners “behavior modifiers,” reminded us that we are “the antidote to panic.”

Murray said most advisers will try everything they can do to keep a client from turning a temporary decline into a permanent loss of capital. He wasn’t optimistic, however, that the natural tendency of investors to sell low and buy high will stop anytime soon.

His final advice was blunt. “Think of your clients who had beautifully designed and executed investment portfolios that would have carried them through three decades of retirement, who started calling you in 2008 wanting to junk it and go to cash. How many of these people have called you since then and tried to do it again?”

I myself could think of several.

“How many times have they gone out on the ledge and tried to jump, and how many times have you pulled them back in?” Murray asked.

By now I could see heads all over the room nodding.

Then he delivered a memorable line: “I am telling you as a friend, stop wasting your time on these people.” The heads stopped nodding. “Save your goodness and your talents for those who will accept help from you.”

I have certainly learned, often the hard way, that helping people who aren’t ready to change is futile. Yet I disagree to some extent with this part of Murray’s advice. If clients have gone out on the ledge more than once, but have called me and accepted my help in pulling them back in, then together we have succeeded in modifying their behavior.

This is a far different scenario from that of a panicked client who refuses help by ignoring a planner’s advice. If planners see our role as “antidotes to panic,” we need to realize that, for some clients, the antidote may have to be administered more than once.

———-

Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

MONEY financial advice

Advisers Are Trying to Sound Less Like Robots

Thesaurus and Dictionary in stack
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Some impressive-sounding financial-industry buzzwords simply turn people off, according to research with high-net-worth investors.

Advisers are rethinking the words they use with clients to avoid off-putting terms that can sound a little less than human.

For example, the term “risk tolerance” is giving way to “comfort level.” “Financial freedom” is also passé, especially after the 2008-2009 financial crisis. Now, it’s better to use “financial security.”

Thank Invesco for the impetus. In 2007, the investment giant’s consulting arm hired maslansky + partners, a global marketing strategist to do for Invesco’s wholesaling business and ultimately, the financial services industry, what maslansky once did for conservative politicians. It was maslansky’s co-founder, Dr. Frank Luntz, who morphed the phrase “estate tax” into a more unappealing “death tax.”

Maslansky’s trademark: “It’s not what you say, it’s what they hear.”

The ongoing initiative by Invesco and maslansky involves recruiting mass affluent and high-net worth investors with assets of at least $250,000 to test how they perceive advisers’ messages.

Participants watch a spiel by an actor who plays an adviser and turn dials up or down according to how positively or negatively they feel about the message they hear. An audience observes the investors’ reactions real time.

“We find there are definitely words to use and words to lose,” said Scott West, who heads Invesco Consulting.

Invesco, which manages $790 billion, and maslansky are now focusing on the language of alternative investments. Preliminary findings show that advisers should describe alternatives in terms of “goals-based strategies” rather than “risk-based strategies,” said David Saylor, executive director of Invesco Consulting.

Investors who took part in the focus group were not motivated to learn about new investments so they could “lose less” money. But the dials jumped in response to presentations that led with how alternative investments could help clients’ attain their personal goals while minimizing losses, Saylor said.

Buzz about the benefits of humanizing sales pitches has drawn interest from other firms. Portfolio management firm Loring Ward first tapped maslansky’s expertise in 2012.

That is when Steve Atkinson, the firm’s head of adviser relations, first saw how negatively investors perceived advisers’ pitches. It felt like “a slap in the face,” Atkinson said. Advisers tended to use too much jargon, such as “volatility” and “small cap.” They also occasionally boasted too much about methods and past successes, including “Nobel Prize-winning research.”

Don Hershberger, president of Paramount Wealth Management in Jackson, Mich., immediately hired a consultant to redesign his firm’s website after sitting in on a focus group organized by Loring Ward and maslansky in 2012. The firm replaced offending jargon with a feel-good message to clients about family.

Client feedback showed the change resonated, Hershberger said. Now he is always careful to emphasize only clients’ needs and feelings — not the intricacies of specific investments — in conversations with clients and in the main messages on his website,

“We had to confirm that they were hearing what we wanted to say to them,” Hershberger said.

 

MONEY Financial Planning

Millennials Are Mooches…and Other Money Myths

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Kevin Dodge—Getty Images

Here are three financial stereotypes that just don't ring true to one experienced planner.

There are plenty of stereotypes about how certain people behave around money — stereotypes I’ve often seen contradicted in my experience as a financial planner. Let me debunk some of these money myths for you.

Myth One: All millennials are mooches.

The 30-year-old client came in for the first time. She asked a question that, if you were to listen to the financial media, no one has ever asks. “Can I pay off the student loans my parents took out for me without any tax consequences?”

Say what? Young people sending money to their parents?

I’ve never heard that mentioned in my almost 20 years in the industry. According to the myth, millennials are unemployed and live rent-free in the basement, while expecting their parents to pay for pricey destination weddings.

My sensitivity to what I hear in the media on this issue started when, to prepare people’s taxes, I started asking clients if they had lent anyone money who hadn’t paid them back.

That’s when I started hearing it. “Hasn’t paid me back? Will never pay me back? Yeah, that’s my Dad.” It’s not common response, but I heard it several times a year.

In fact, I’ve heard about just as many parents trying to mooch off their kids as the opposite. My conclusion: If you have more money than other people in your family, there is a small chance you’ll deal with a mooch — um, I mean, a relative with boundary or entitlement issues.

Myth Two: Women care more about spending money than investing. Men care more about investing than spending.

Perhaps this was true once upon a time. In my practice, however, I regularly see women who are more interested in money, saving, and investing than their husband. Conversely, I see men who love to spend — sometimes more than they know is wise — and enjoy the finest in life.

Recent research shows that while men might score better on a pop quiz about interest rates and bond prices, men and women show no difference in investing and spending behavior.

Myth Three: Financial advisers work only with rich patriarchs.

When I first started in financial planning, I sat next to an established planner at dinner. He described his ideal client: “Men over sixty who have made a lot of money who just want to make sure their families are taken care of.”

“Oh, “ I said, “you work with patriarchs!”

We laughed at my joke. However, in my male-dominated industry, I dare say this is the ideal client of a lot of advisers. I call the pursuit of these clients “Searching for Victor Newman,” after the ultra-rich paterfamilias who drives his family nuts on The Young and the Restless.

Working in the industry has assured me that patriarchy is on the wane. I’ve only had one client who said that “taking care of his family” was what he aspired to, and I’ve talked to hundreds of people about their goals and values.

My experience is that both men and women want to make sure that their kids and partners are taken care of both financially and emotionally. They work on the project together.

This bias gives consumers the impression that advisers only want to help Victor Newmans. Here are three organizations that help both advisers who aren’t hunting for that client and consumers who want to meet them:

And my answer to the client in the fortunate position of paying back her parents? After consulting with an attorney on her specific situation, I told her to go ahead.

———-

Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

MONEY mutual funds

Why Mutual Fund Managers Are Having a Bad Year

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Eighty-five percent of stock-pickers at large-cap funds are trailing their benchmark indexes — likely their worst performance in three decades.

Stock-picking fund managers are testing their investors’ patience with some of the worst investment returns in decades.

With bad bets on financial shares, missed opportunities in technology stocks and too much cash on the sidelines, roughly 85% of active large-cap stock funds have lagged their benchmark indexes through Nov. 25 this year, according to an analysis by Lipper, a Thomson Reuters research unit. It is likely their worst comparative showing in 30 years, Lipper said.

Some long-term advocates of active management may be turned off by the results, especially considering the funds’ higher fees. Through Oct. 31, index stock funds and exchange traded funds have pulled in $206.2 billion in net deposits.

Actively managed funds, a much larger universe, took in a much smaller $35.6 billion, sharply down from the $162 billion taken in during 2013, their first year of net inflows since 2007.

Jeff Tjornehoj, head of Lipper Americas Research, said investors will have to decide if they have the stomach to stick with active funds in hopes of better results in the future.

“A year like this sorts out what kind of investor you are,” he said.

Even long-time standout managers like Bill Nygren of the $17.8 billion Oakmark Fund and Jason Subotky of the $14.2 billion Yacktman Fund are lagging, at a time when advisers are growing more focused on fees.

The Oakmark fund, which is up 11.8% this year through Nov. 25, charges 0.95% of assets in annual fees, compared with 0.09% for the SPDR S&P 500 exchange traded fund, which mimics the S&P 500 and is up almost 14% this year, according to Morningstar. The Yacktman fund is up 10.2% over the same period and charges 0.74% of assets in annual fees.

The pay-for-active-performance camp argues that talented managers are worth paying for and will beat the market over investment cycles.

Rob Brown, chief investment strategist for United Capital, which has $11 billion under management and keeps about two thirds of its mutual fund holdings in active funds, estimates that good managers can add an extra 1% to returns over time compared with an index-only strategy.

Indeed, the top active managers have delivered. For example, $10,000 invested in the Yacktman Fund on Nov. 23, 2004, would have been worth $27,844 on Nov. 25 of this year; the same amount invested in the S&P 500 would be worth $21,649, according to Lipper.

Even so, active funds as a group tend to lag broad market indexes, though this year’s underperformance is extreme. In the rout of 2008, when the S&P 500 fell 38%, more than half of the active large cap stock funds had declines that were greater than those of their benchmarks, Lipper found. The last time when more than half of active large cap stock managers beat their index was 2009, when the S&P 500 was up 26%. That year, 55% of these managers beat their benchmarks.

Unusually Bad Bets

In 2014, some recurring bad market bets were made by various active managers. Holding too much cash was one.

Yacktman’s Subotky said high stock prices made him skeptical of buying new shares, leaving him with 17% of the fund’s holdings in cash while share prices have continued to rise. He cautioned investors to have patience.

“Our goal is never to capture every last drop of a roaring bull market,” Subotky said

Oakmark’s Nygren cited his light weighting of hot Apple shares and heavy holdings of underperforming financials, but said his record should be judged over time. “Very short-term performance comparisons, good or bad, may bear little resemblance to long term results,” he said.

Shares of Apple, the world’s most valuable publicly traded company, are up 48% year to date. As of Sept. 30, Apple stock made up 1.75% of Oakmark’s assets, compared with 3.69% of the SPDR S&P 500 ETF.

Investors added $3.9 billion to Nygren’s fund through Nov. 19, Lipper said.

Still, some managers risk losing their faithful.

“We have been very much believers in active management, but a number of our active managers have let us down this year, and we are rethinking our strategy,” said Martin Hopkins, president of an investment management firm in Annapolis, Md. that has $4 million in the Yacktman Fund.

Derek Holman of EP Wealth Advisors, in Torrance, Calif., which manages about $1.8 billion, said his firm recently moved $130 million from a pair of active large cap funds into ETFs, saying it would save clients about $650,000 in fees per year.

Holman said his firm still uses active funds for areas like small-cap investing, but it is getting harder for fund managers to gain special insights about large companies.

For those managers, he said, “it’s getting harder to stand out.”

MONEY Financial Planning

3 Questions That Will Put Your Finances — and Life — on the Right Track

Backpacker on mountain trail
Backpacker on mountain trail Getty Images

Financial planning guru George Kinder has a powerful tool for helping people set priorities for their money...and their lives. Here it is.

Few things seem more diametrically opposed than managing money and spiritual enlightenment. But not everyone sees it that way. Some very influential people in the financial advisory community have dedicated their lives to helping advisers assist clients deal with the more personal elements in personal finance.

Consider George Kinder, the Harvard-trained economist-turned-philosopher-turned-CPA. He managed to evolve his tax practice into a comprehensive financial advisory offering, with supporting methodology, while on the successful path to becoming a Buddhist teacher based in Cambridge, Mass. and Hana, Hawaii.

Within the advisory community, Kinder is almost universally known as the “father of life planning.” To many advisers, his work is the seminal, much-needed missing link between life and money. He originally articulated his views in his book, The Seven Stages of Money Maturity. Many more advisers, however, envision Kinder playing the ukulele on a magic carpet — just a little too “out there” for mainstream consumption and practical application. Having moved from the camp of skeptics to the camp of adherents myself, I invite you to consider what could become one of the most valued tools in a financial planning practice: George Kinder’s Three Questions.

Most advisers believe it’s vital to know a client’s answer to the following two questions: “What are your goals in life?” and “What are your values?” Unfortunately, most financial planners simply ask them verbatim. The responses they receive to those starkly boilerplate questions are largely generic. Clients answer with what they think they’re supposed to say, not with a measured evaluation of what’s actually most important to them. Kinder takes a different route, beginning with his first of three questions.

Question One: I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is, how would you live your life? What would you do with the money? Would you change anything? Let yourself go. Don’t hold back your dreams. Describe a life that is complete, that is richly yours.

If Kinder lost you at “Let yourself go,” go back and refocus on the first part of the question. Better yet, simply answer the question yourself. What you’ll likely find in your answer is a more complete, genuine, and interesting response to our traditional question, “What are your goals in life?” You see — there’s a method at work here.

The second question goes deeper.

Question Two: This time, you visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?

The first time I read this question, I approached it entirely too literally. Most clients, I retorted internally, can’t just decide (or afford) to live life as though they knew they were going to die within the next 10 years! But again, the point of this query is to evoke a better answer to the question, “What are your most deeply held values?” Here you’ll receive a lot of answers about family, relationships and bucket-list items.

Another purpose of question two is to prepare you for the third question.

Question Three: This time, your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done? What did I miss?

If a client really engages with this third question, you’ll now get beyond superficial answers and start to learn about what really drives this person in front of you. You’ll discover what makes them unique, what they long for, and what should likely be reflected in your planning to avoid making more recommendations that will only fall on deaf ears.

I have seen numerous advisers employ Kinder’s Three Questions and vastly improve their insight into a client’s values and goals. For fully dedicated Kinderites, this is just the beginning. There’s an entire planning methodology found in his book on practice management and in his courses.

George Kinder has provided some much-needed yang to the financial industry’s yin. For your practice, for your clients — and even for you — his Three Questions should be informative. And who knows? They may be transformative too.

Consumers can get a free, self-guided version of Kinder’s EVOKE life planning process — including the Three Questions and other exercises — at LifePlanningForYou.com.

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Financial planner, speaker, and author Tim Maurer is a wealth adviser at Buckingham Asset Management and the director of personal finance for the BAM Alliance. A certified financial planner practitioner working with individuals, families and organizations, he also educates at private events and via TV, radio, print, and online media. “Personal finance is more personal than it is finance” is the central theme that drives his writing and speaking.

MONEY financial advisers

Your Investment Adviser Needs an Annual Inspection

Car inspection
Abel Mitja Varela—Getty Images

Your car needs to be checked every year to make sure it's not a danger to yourself or others. Why shouldn't the person handling your money get the same treatment?

In most states, automobiles must be inspected annually to make sure they meet minimum safety standards. This inspection is typically paid by the car owner. And while these inspections may not catch all vehicle problems, they help prevent cars with a range of safety violations from getting back on the road. That provides significant benefits, including peace of mind, to the driving public

Now imagine if cars were inspected on average only once every 11 years and that 40% of cars never get inspected. Would that affect your confidence to drive in your city? How wary would you now be of the car next to you? Would you consider changing to public transportation to avoid other cars on the road? My suspicion is that many of us would change our driving habits to one degree or another. I myself am not sure I’d feel comfortable driving at all.

This, unfortunately, is the situation with investment advisers: They’re inspected or audited on average only once every 11 years, and 40% have never been audited at all.

Do you think that if this information were widely known by the public, consumers would have less confidence in investment advisers? I think they would. Let’s say you’re an investment adviser: Could that impact your own practice, even if you play by all the rules? I think it could.

The management of life savings is a very personal and emotional decision for many investors. An effective investment adviser listens very carefully to a client’s personal situation, crafts a customized investment policy statement for that client, and then abides by this directive to manage the client’s portfolio by executing it and monitoring it to make sure the client is well served. The media has reported widely over the years on egregious cases in which investors have been taken advantage of by investment advisers who clearly were not placing their client’s interest first.

The Securities and Exchange Commission, which is primarily charged with examining investment advisers, has its hands full. Even with the best of intentions, the SEC cannot always perform examinations with the regularity that it wants to. Funding issues are no doubt part of the problem.

To better serve the public, shouldn’t we making sure that checks and balances are adhered to and to monitor this by doing more regular examinations of investment advisory practices?

Is there a better way to ensure that the frequency of an examinations goes up to the point where all investment advisers are audited at least every three or four years?

Perhaps, similar to the requirement that cars be inspected once a year, investment advisers should pay a nominal user fee that is dedicated to regular examinations of those registered by the SEC. It’s difficult for us advisers to argue against this concept, because we’re the ones who benefit from the privilege to be able to work in this profession — just like people benefit from the privilege of driving on a road with a reasonable degree of safety.

There is a bill already before the U.S. House of Representatives (H.R. 1627) that supports this approach and has bipartisan support. This bill has wide industry support, too, from organizations including: AARP, Consumer Federation of America, Certified Financial Planner Board of Standards, Financial Planning Association, Investment Adviser Association, National Association of Personal Financial Advisors, and the North American Securities Administrators Association.

So while it’s true that such an approach should probably have been adopted years ago, we have a notable opportunity to move this trajectory in a positive direction. If we succeed, the public is better protected and served, and we all as investment advisers can benefit from greater confidence in us and in the work we do.

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Stuart Armstrong, CFP, is a member of the Financial Planning Association Board of Directors.

MONEY stocks

Stocks Go Up. Stocks Go Down. Deal With It.

The best tool for addressing anxiety about the stock market is information. Unfortunately, that isn't always enough.

Like some of our investment advisory clients, I fear the market sometimes. The way I combat that fear is with information. Markets go up, markets go down. Here’s what’s normal. Here’s where we are.

Last month, in conversation with one of my more nervous clients — when I had finished my list of market facts and cycles, when I had emailed my short and long-term charts — she replied, “And I’m supposed to be content with that?”

Essentially, yes. That’s the answer most financial professionals would have, if they’re honest.

I suppose you may find it strange, but that’s the kind of challenge I’m up for. It’s a challenge to try to keep clients calm when markets are anything but calm.

In 2008, many of my friends who are financial advisers were deeply affected by the trauma that clients experienced as markets worldwide experienced the worst decline since the Great Depression. They remain affected by it. Trauma is not too big of a word.

Today, I don’t fear the downturn. I speak.

In a downturn, people’s attention is most focused on sliding markets. They may hear what you have to say, but they may not listen to your various messages: Markets are risky. They go up and down. If you don’t take market risk, you limit your potential for capturing the gains when they do come. If you do take market risk, you’ve got to be able to see that downturns are a part of the deal. Shall I get out my trusty charts now and show you just how common it is for markets to fluctuate?

Probably I’d bore you if I did. What you probably want to know is what’s a good strategy for dealing with a volatile market.

You could move some money out of equities, of course. Or we could layer into the portfolio some exchange-traded funds that continuously move out of the most volatile stocks and into the less volatile ones. Both these moves will limit returns, but will also make the trends less upsetting.

But even if we lessen the throbbing uncertainty, we cannot eliminate it.

No one has overcome market cycles yet, no matter what they promise. Cue the charts.

And here’s the flip side: For all the confidence the clients might have in us, we can’t tell them when the markets will tumble. We can’t tell them when to run for the hills. Because no one can.

I feel I have gone down this road to every end I can find, looking for the analytics, the portfolio theory, the guru, the portfolio construction expertise, the economic underpinning, the macro-down and the bottom-up way of selecting exactly what would be the best globally diversified portfolio. I’ve made my own deal with risk and return. But none of that work changes the simple fact markets do go down periodically. Personally, I am content with that.

But for that client, this is not a comfortable fact.

It’s humbling, really, to have a discussion in which you cannot provide something which is very much wanted.

But it’s a smart discussion to have.

The client told me that when the market goes up again, I have permission to say, “I told you so.”

The market is up nearly 10% since we had that conversation, so I might. But when times are good in the markets, it’s the same as when times are bad: Clients don’t listen.

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Harriet J. Brackey, CFP, is the co-chief investment officer of KR Financial Services, a South Florida registered investment advisory firm that manages more than $330 million. She does financial planning for clients and manages their portfolios. Before going into the financial services industry, she was an award-winning journalist who covered Wall Street. Her background includes stints at Business Week, USA Today, The Miami Herald and Nightly Business Report.

MONEY financial advisers

What Is a Fiduciary, and Why Should You Care?

Your investments are at stake, explains Ritholtz Wealth Management CEO Josh Brown (a.k.a. The Reformed Broker).

MONEY financial advisers

My Client Is Making a Terrible Financial Choice. What Do I Do?

Wallet being protected by little green army men
John Lamb—Getty Images

When panic drives someone to make a self-destructive money decision, it's the financial adviser's job to protect the client from himself.

Suppose one of my clients has his heart set on using half of his retirement account to buy each of his grandchildren a new car. Or a client in a panic over falling markets wants to sell all her stocks and buy gold. What is my responsibility as their financial planner? How far should planners go to try to keep clients from making serious financial mistakes?

It’s important for planners to respect clients’ competence and ability to make their own life decisions. Client-centered planners also need to remember that the goal is to help clients get what they want, not what the planner might want or think the client should want. On the other hand, should a planner stand idly by and watch someone walk off what the planner perceives as the edge of a financial cliff?

Part of the answer to this dilemma stems from a planner’s legal obligation. Most advisers who sell financial products have no fiduciary duty and are not legally required to put their customers’ interests first. Fiduciary advisers, which include those who are fee-only, do have a legal obligation to act in their clients’ best interests.

What is the legal responsibility, then, of a fiduciary planner who believes clients are about to do themselves financial harm?

Let’s say I have a client who is about to do something that may be viewed by a court of law as “extreme” or “imprudent.” (An example would be putting all his money into one asset class like gold, cash, or penny stocks.) At the minimum, I would need to protect myself by carefully fulfilling my legal responsibilities. This would include making certain I emphasized to the client that, given the research and data available, his actions could hurt him financially. I also would want to be sure the client fully understood and took responsibility for his actions.

In terms of the broader aspect of what financial planners owe to their clients, meeting this legal obligation is not enough. In my view, fiduciary planners’ obligation to put clients’ interests first includes an ethical responsibility to do no harm. Sometimes this ethical and legal responsibility requires planners to give clients information they may not want to hear.

As we focus on the clients’ goals and help them carry out their wishes, part of our role is to make sure they have all the information they need. This gives us a responsibility to educate ourselves so the advice we offer is as sound as we can make it. We also need to do whatever we can to help clients hear and understand that advice.

Clients who are hovering on the edge of a financial cliff are typically about to act out of strong emotions such as fear. They often can’t take in financial advice until they are able to move through that fear. It only makes things worse if financial advisers shame clients, bully them, or abandon them to their fears. The challenge for planners is to help clients reach a more rational place so they can gather additional information and make decisions that will serve them well.

With the right kind of support, clients are almost always able to get past the fear that is pushing them to make imprudent decisions. Providing such support by working with clients’ emotions and beliefs about money, perhaps with the help of a financial therapist or financial coach, is well within a financial planner’s ethical responsibility. Our role is not merely to do no harm. It is also to use all the tools we have to help clients act in their own best interests.

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Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

MONEY financial advice

The Downside of Financial Jargon

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Robert Nicholas—Getty Images

If you focus too much on charts, graphs, and asset allocation, you can end up overlooking what's really important about someone's finances.

Sometimes our clients’ simplest questions are the ones that we overlook.

Not too long ago I started prepping for an annual meeting with one of our clients. As is the case with most financial planners, our process involved collecting data from various sources so that we would be prepared to discuss not only our annual agenda items but also any questions our client might raise about her overall financial plan.

Our annual meetings are an opportunity for us to discuss with our clients their life changes, re-focus their goals, and address any other external events that might have an impact on their overall plan. So we made sure we were ready to discuss portfolio performance and allocation, even if we didn’t intend to spend much of the meeting going over performance. We also made sure to review various benchmarks, mutual fund performance reports, and any other information that might bear on our client’s ability to achieve her goals. Suffice it to say, I felt it better to be overprepared than underprepared.

Meeting day arrived, and I was ready. I glided through the agenda items with my client while highlighting the areas that I thought needed addressing. Of course, I showed her colorful pie charts in order to highlight her portfolio’s diversification and performance. As I concluded the agenda, I noted that since there were no major life changes, I didn’t see a need to alter the portfolio.

I thought our hour-long meeting had gone well — until, that is, my client looked at me and said, “Frank, I just want to know if I’ll have enough money to continue living my current lifestyle.”

I was floored. All of my prepping for the meeting was to highlight that she was on track and that everything was moving along as we had planned. The problem, however, was that the information was in a language that made the answer to her question obvious to me but not to her. My charts looked pretty to me, but didn’t address her question.

I thanked her for her question, and I made a commitment to change how I would address that in future meetings. In other words, I would make sure we discussed her current spending as well as other aspects of her financial life within the context of how her lifestyle might be affected.

After our meeting, I continued to ponder her question, because she was right. My meeting agenda was filled with language and jargon that I understood but not my client.

I reflected on whether we as an industry overcomplicate concepts that can be easily communicated in a way that more directly addresses our clients’ basic fears. The answer for me was to question my assumptions about my client communications in general and re-evaluate how I would communicate moving forward with all my clients. I made a commitment to listen more for their fears and address them more directly — free of industry jargon whenever possible. I would not assume my spreadsheets and pie charts said it all. In other words, I would keep it simple.

———–

Frank Paré is a certified financial planner in private practice in Oakland, California. He and his firm, PF Wealth Management Group, specialize in serving professional women in transition. Frank is currently on the board of the Financial Planning Association and was a recipient of the FPA’s 2011 Heart of Financial Planning award.

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