One of the greatest skills of financial planners is the ability to take a huge – and often complicated – raft of information and not only turn it into a strategic and achievable plan, but also help the client understand what you’re recommending and the reasons for those recommendations.
As a paraplanner, this is a skill that I’ve been working on over more years than I care to think about. However, it never ceases to amaze me how many clients don’t understand their own financial position, or even want to understand it.
I have recently come across a couple that would massively benefit from the help of a financial planner. They know and acknowledge that they need help – not because they are in danger of running out of money – but because they plan to make significant changes to their lifestyle which will require them to look deeply at their income and expenditure habits. In effect, they need to undergo a cash flow analysis to prove to themselves that they can afford to make those changes.
So far so good.
Unfortunately, the real snag arises because both parties are too scared to look at their numbers – in case it tells them something they don’t want to acknowledge.
Furthermore, these clients (who have been married for over thirty years) are too scared to even talk to each other about their financial situation.
This would be understandable to an extent if they were in a difficult or tight financial position, or had a relationship that wasn’t secure or trusting, but this isn’t the case. I’m comfortable that they have plenty of income, assets and scope to ‘cut their cloth’ if they ever needed to. Experience alone tells me that a cash flow will merely endorse this fact. However, even though they agree with this in principle, they are still unwilling to engage with a planner – let alone each other – to prove this in order to empower them to make the changes to their lifestyle that they want. Hence, they are continuing to do the same thing every day in the expectation that something will magically happen which makes it all possible.
Here we see a very bizarre psychological phenomenon, which I’ve come to know as ‘cash flowbia’ (closely related to Chrometophobia, which is the fear of money). It is the acceptance of logic, reason and rationale, whilst at the same time adopting a total rejection of all those things in favour of fear, guesswork, procrastination and the general unknown.
As someone who’s worked in financial services for a very long time, this sort of thing is still baffling to me. I find it hard to understand why people are so scared of knowing the truth. To me, the thought of having no idea whatsoever about my financial future or security is deeply troubling. Surely if you know that there is – or might be – a problem on the horizon then, if you have early warning, you can take action and do something about it?
Why does money turn normally rational, sensible and intelligent people into irrational and emotionally destructive individuals? Is our relationship with money really that dysfunctional that people who share everything about their lives in every other way draw the line at talking about it? Why is their own money such a taboo subject?
I’ve tried various tactics to get these people talking and to view their money as simply a ‘tool’, rather than this ‘make or break’ thing that runs their lives and governs their happiness. I’ve also tried encouraging one party – the more engaged and organised of the two – to take the lead in terms of compiling the numbers but I’m always met with ‘I haven’t had the time’. A few months pass and we have the same conversation again. And again. And again.
All we need is an idea of their income, expenditure, assets and liabilities. This is not rocket science to these people; they’re just frightened of what they might find out.
Reluctance and fear
I understand this part to a greater extent. Life is very full for most of us and it’s human nature to put things off, or regard them as a lower priority, than the things that we know we need to do, but don’t want to.
The thing is, every day that they put this off, their goals not only become a day further away from being achieved, but also it’s a day’s less time available to save for them.
One thing I know for sure is that, despite being in a comfortable financial position, and their goals being realistically achievable, it will require them to make some changes to their situation. This is, almost certainly, where the reluctance and fear lies.
The first main change is that one party will be quitting a very stressful line of work that already has only a finite amount of time left before the job dissolves in any case. This leads to the second main change: For the first time, the other party will become the ‘breadwinner’. This party runs their own business which, until now, had always been a hobby that happened to be quite successful. All of a sudden, they are now facing the prospect of having to keep it successful – which means it will turn from a hobby into a commitment.
The current breadwinner has two options: Get another job locally, which will probably halve their earnings, or work in their spouse’s company. This puts extra pressure on the spouse, who will not only go through a huge change in terms of how they view their own business, but will also suddenly be responsible for the financial security of both of them. This is pretty scary stuff if you’ve never been in that position before.
So, inevitably, when you poke around under the surface you get to understand that all the number crunching, coaching and financial planning in the world can’t always get past the simple fact that money is – rightly or wrongly – a very emotive subject. Sometimes this will lead people to make bad decisions ≠ or worse, no decisions at all.
How might this play out?
Sadly I’m still not sure what the answer is for this couple. I’m reluctant to try my hand at being a marriage guidance counsellor to get them to communicate with each other. That’s not something I’m trained for and it could be very damaging to get that deeply involved. I have a sneaking suspicion that they’ll let things continue as they are until the present breadwinner is genuinely out of work. By then their options will be limited and they will be in a panic situation.
It’s a real shame, when you know that a simple cash flow analysis will give them the confidence to bite the bullet now and make significant positive changes to their lives. It’s a very hard thing to watch clients ignore your advice and make their own mistakes. Inevitably though, we’ll still be there to help them get back on track when the time is right.
The moral of the story – and a tough lesson learned for me – is that it doesn’t matter how good you are as a financial planner, or how excellent your service proposition is, you can only work with people that want to work with you.
This is the original version of Kim’s article for Adviser Business Review and was published April 2016.