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How to Be a Good Client
Call Before Making Major Financial Decisions
We recently wrote an article about selecting a financial planner (June/July issue). This is a popular topic. But little is written about how to be a good client once you’ve made your selection. Some people think that once they have obtained a financial plan, the process is done. In fact, the plan is just the starting point of the relationship.
Financial planning is an evolutionary process. To achieve your financial goals, it’s important that the planner and client work together effectively. Here are some suggestions to establish and maintain a successful relationship with your financial planner.
Provide all the financial information the planner requests of you. The more accurate and detailed the information you provide your planner, the more helpful your financial plan will be. If you give us incomplete or inaccurate data, we may give you inappropriate advice. Once the error has been detected, we’ll have to redo your plan. Since most planners charge an hourly rate, this can increase your costs.
For instance, we need to see a recent mortgage statement so that we know what kind of mortgage you have, the amount originally borrowed, the length of the mortgage and the current interest rate to know how much of your mortgage payment is tax-deductible each year. Just knowing your balance due and interest rate isn’t sufficient.
We also need to know the financial situation not only for you but also for others you might be financially responsible for now or in the future. For instance, you might have to support a parent, sibling or handicapped child in addition to yourself.
Be honest with your adviser about your financial goals, risk tolerance and attitudes toward different kinds of investments. To construct an effective financial plan, you need to define and prioritize your goals. If you really want to retire at 55 rather than wait to age 65, say so. Based on your current situation, your planner may say that it may not be financially possible to retire at age 55. If retiring at that age is your No. 1 financial planning goal, however, your planner can help you determine what the shortfall is and what remedial action you might take to retire at that age or at least sooner rather than later.
There’s no right or wrong attitude toward taking risk. It’s all right to declare yourself conservative or a risk-taker (although we find a client’s attitude toward taking risk changes in direct relation to whether his assets are gaining or losing value). What’s important is to tell your planner how you really feel. Many planners will ask you to take a risk tolerance test that we urge you to complete. If you have a spouse, both of you should take it. You may find you’re more risk-tolerant than your spouse or partner. If this is true, the planner has to figure out how to reconcile these differences.
Because of experiences you or your parents have had, you may be averse to a particular type of investment. There’s more than one way to achieve successful investment results, so if your planner knows you’d prefer not to select a certain type of investment, this can be factored into your recommendations. On the other hand, your planner may point out that a particular investment might not have been a good one in the past but is now. Try to keep an open mind in this regard.
Ask questions if you don’t understand what the planner is telling you — even if you think the questions seem naïve. There’s no such thing as a stupid question — you’re merely asking a question about a subject in which you lack expertise. After all, you wouldn’t be paying the adviser if you thought you had the knowledge and time to do it yourself. The adviser might presume you’re more financially knowledgeable than you are, so it’s your job to tell your planner when you don’t understand something.
Once you receive the written plan, if it doesn’t reflect your situation accurately or you’ve changed your mind since starting the financial planning process, tell your planner so that adjustments can be made.
As mentioned above, the financial plan should be a starting point in achieving your goals. The plan can and should be modified over time as your situation changes. Most financial planners charge an hourly rate for their work, but once the basic information is in the computer, the information can be changed relatively easily.
On the other hand, don’t get carried away with running multiple scenarios. Sometimes a client isn’t sure when he or she wants to retire and wants to perform several “what if” calculations: “What if I retire at age 55, or 60, or 65? What if we move to Florida and rent our current home? What if we buy a second home?”
Although the plan document is designed to be flexible, you can spend a lot of money having these additional scenarios considered. Think through what your goals really are before meeting with the planner. Start with the scenario you think is the most desirable. Once you’ve seen the results, the plan can always be modified.
Implement the planner’s recommendations soon. Before agreeing to work with your financial planner, we presume you investigated his or her expertise. Thus, when the planner gives you advice, follow it. If you have questions about the advice, discuss them with the planner immediately.
If you wait six months to implement the advice, tax laws and market conditions may have changed. In this situation the planner would need to adjust the recommendations. Advice such as updating your will would still be relevant, but a recommendation to shift from one specific investment to another within your retirement plan could change.
Keep your planner advised about any financial changes in your life. Obviously, you’d notify your financial planner if you lost your job. What’s less obvious is letting your planner know that you’ve started to send monthly checks to your father, who recently was diagnosed with Parkinson’s disease, or are helping a child whose marriage is floundering. Your planner not only might need to adjust your plan to reflect these changes but also might be able to help identify other ways to pay for your family’s financial difficulties.
Call your planner before you make any major financial decisions. Sometimes clients tell us after the fact that they have refinanced their home, leased a car or provided a loan to a family member. Since the planner understands your total picture, he or she can help you decide whether to take the action you’re contemplating and, even more importantly, how to do it most effectively.
For instance, if you’re going to loan a friend or family member money, you should draw up a formal agreement. That way, if you aren’t repaid, you can deduct the loss on your tax return. Planners don’t want to be in the position of telling clients after the fact that they shouldn’t have taken a particular action or that they did it the wrong way. It’s better to ask first, even if the planner agrees your decision is the right one.
Treat your planner and the staff members as you would like to be treated. Although your financial planner wants to be responsive to you, some problems you may face are more crucial than others. Try to distinguish between them when you contact your planner. Keep in mind that planners have other equally important clients who may need advice at the same time you do.
For instance, if it appears a dividend hasn’t been credited to your account correctly, don’t insist on an immediate answer. It often takes some time to find out what went wrong in your account and to correct it. On the other hand, if you’re leaving town tomorrow and must get an immediate answer to a pressing question, say so.
Try not to wait until the last minute to ask for help. For example, if you’re missing a cost for something you sold last year and will need that information to prepare your tax return, don’t wait until April 14 to contact the planner. Call earlier in the year or ideally when you sell the investment. Researching costs of investments can take time, particularly if you have owned it for a long time.
By the same token, if you find that your financial planner or a staff member consistently isn’t responsive in a timely fashion, it’s legitimate to complain about this lack of service either to the person involved or to the office manager.
Recognize the need for regular reviews of your financial plan. Although it may not be necessary to have a comprehensive written financial plan each year, it’s important to visit with your planner annually to discuss any changes in your life that would affect your financial planning. At this time, your planner will tell you about any changes in the economy or tax laws that would warrant modifying your existing plan and investments. But don’t wait for this annual meeting to provide information about changes in your life that will affect your financial plan.
Maximize the relationship with your planner. Assuming you have found the right planner for your situation, you’ll probably work with that planner for a long time, perhaps for the rest of your life. To maximize the relationship, make sure you’re communicating effectively with each other. Just as when you work with other professional advisers, if you and your planner are on the same wavelength, it will be easier to achieve your financial goals.
Alexandra Armstrong is co-author of the fourth edition of On Your Own: A Widow’s Passage to Emotional and Financial Well-Being. She is a Certified Financial Planner practitioner and chairman of Armstrong, Fleming & Moore, Inc., a registered investment advisory firm in Washington, D.C. Securities are offered through Commonwealth Financial Network, member FINRA/SIPC. Investment advisory services are offered through Armstrong, Fleming & Moore, Inc., an SEC-registered investment adviser not affiliated with Commonwealth Financial Network.
Karen Preysnar, Certified Financial Planner practitioner, co-author of this article, is vice president in charge of financial planning at Armstrong, Fleming & Moore, Inc., and a registered representative with Commonwealth Financial Network.
Individuals should contact a financial planner, tax adviser or attorney when considering these issues. Commonwealth Financial Network does not give tax or legal advice. Consult your personal adviser before making any decisions. The authors cannot answer individual inquiries, but they welcome suggestions for article topics.