D O M I N I C U YS

of instant gratification

The long-term benefits

their retirement and perhaps motivate them to put some money away in long-term investments that help them reach their aspirational goals.

Where your clients’ short-term spending is concerned: what they blow their leftover money on in an attempt to fill the existential void, is located firmly in the territory of ‘not your problem’.

Michael Falk, partner at US-based Focus Consulting Group, disagrees with almost everything in that last sentence, however. He posits that making sure your client is happy with

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It goes without saying that every one of your clients has an emotional connection to his money. You see it in his excitement over possible new investments, his inability to

stop bragging about his new Land Rover, and his pale face when you preach to him about retirement savings.

These excitements are driven by the immediate and short-term happiness they create, but your job as a financial adviser is very much about looking past that and focusing on what lies ahead. Make sure your clients save enough for

his money right now, may be just as important. “Helping your client spend his money on the right things to improve his enjoyment will in turn set you apart as an adviser,” he says.

To start, Falk is also a firm believer in the notion that spending money on experiences instead of objects could turn out to be better for the individual’s overall happiness in the long run.

“Why should someone purchase an experience over stuff? What we find is that our perception of value or our level of enjoyment with the things that we buy, usually peaks right around the time that we purchase it. On the other hand, we find that in the case of experiences, be it memorable time with one’s family or some adventure, that peak of enjoyment is sustained whenever the person thinks back on the experience.” In a recent article on fastcompany.com, Dr Thomas Gilovich, a psychology professor at Cornell University, echoes Falk’s argument. He notes that the person who spends his money on an experience is also less prone to negatively compare his own experiences to someone else’s, as many tend to do with material purchases.

“The tendency of keeping up with the Joneses tends to be more pronounced for material goods than for experiential purchases,” Gilovich noted. “It certainly bothers us if we’re on a vacation and see people staying in a better hotel or flying first class. But it doesn’t produce as much envy as when we’re outgunned on material goods.”

Can you buy happiness?

Falk argues that, for the financial adviser, discussing current spending, and how to do it best gets into a very different realm to what most advisers tend to talk about with their clients. “But it strikes a cord directly and appropriately on the liability side of the client’s balance sheet,” he adds.

“As financial advisers, when we talk to our clients about spending in general, we tend to talk about two things specifically: does my client have enough money to satisfy his fixed expenses? And then, does the client have additional assets? If the client has additional assets, we look at helping the client achieve

Advising your client to spend his money on a fishing trip, rather than a new sofa. Or telling him that it’s okay to save a little less this month and get that new tattoo. How unusual advice and knowing what makes a client happy right now, pays off in the long run.

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whatever he aspires to. If the client wants to send his kids to university, for instance, you are putting some of that additional money away to save for college.”

“Only after that do we get into the question of asset allocation and the experiences versus objects debate. But here is your challenge: the average young couple, for instance, may not have enough money to cover all three of those bases. If they can cover the fixed costs, should we perhaps start to look at whether they could trade off a future financial goal for perhaps a little bit more satisfaction?”

Falk believes this is a very important question. “Simply because we are not hamsters on a wheel,” he says. “As human beings, we do need to feel that there is more to life. The financial adviser’s role then becomes to help balance the client’s happiness against possibly setting aside or moving out some of his aspirational goals,” Falk says.

There is a clearly defined value for the adviser in understanding this dynamic, according to Falk. “As the competition becomes more fierce for advisers in the market, and as more and more advisers are being replaced by so-called ‘robo advice’, understanding how to better relate to your clients on that level will become your competitive advantage,” he states.

Connecting on a new level

Falk admits that not every financial adviser is equally skilful at connecting with his client on that level. “The fact is that this is a skill that you will start to need in your company. So I would say that if you are more of a technical mind, you may need to start looking for a partner who can add the personal touch to your consultations,” he says.

“Having someone on the team with experience in psychology is also a great way to give your company a competitive edge on this front. Our company does not have any people trained in psychology on staff but we have partnered with psychologists and at times we bring them in to just sit in on advice sessions and talk to the

clients about the emotional aspect of managing their money,” Falk adds.

Know which clients to keep

Peter Hewett, managing director of the independent financial planning firm Efficient Advise, agrees that it has become increasingly important for the financial adviser to find clients that he can relate to and communicate with on a more personal level.

“I have seen it in my own experience as well. At different times, your client will feel wealthy or poor, depending on a wide range of factors, and you see a marked difference in that client’s long- and short-term spending as a result.”

“The important thing to remember here is that your client’s varying appetite for risk in no way influences his actual capacity for risk – and this is what you need to keep reminding him of,” Hewett says.

“At the same time, you have to recognise the things that make your client tick. It is just as much taking your client’s lifestyle into account, as it is looking at his future. Having a happy client is good for you, in the long run,” he continues.

Hewett notes, however, that building the closer relationship with one’s client is very much the same as any friendship. “The key to having that understanding between you and the client depends largely on having the right kind of client. We cannot be all things to everyone and if you and your client are not able to find common ground, then it may be time to drop that client and find one who does align better with your way of working.”

“It seems like a counterintuitive thing to say in an increasingly competitive environment but some clients are worth keeping and some are not. If you are more of a technically-minded adviser, there will be clients that prefer a more clinical approach. If you have more of a personal touch, there are clients that need that understanding as well. Remember, this is potentially a 10 to 15-year relationship you are starting. You want to make sure you are with the right client for the duration,” Hewett says.

Interestingly, Hewett notes that while many clients tend to require a bit of a reality check from their adviser when they overspend, there are also clients who fall on the opposite side of the spectrum. “At times I am just as concerned with my clients who underspend. Some of my clients can get paranoid about their future savings and be afraid to spend their money. It is especially worrying for me when I see these clients getting older, and you realise that their opportunities to enjoy the money that they do have, is running out. I spend just as much time reassuring my underspending clients as I do trying to reign in my overspending ones. Again, it is about making sure that you have a happy client, Hewett concludes.

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