February's on-again, off-again “code orange” alerts eventually created fodder for commentators and comedians who clucked about panicky Americans loading up on plastic sheets and duct tape, only to be told “never mind” a few days later. But the episode says something important about the human need to take action in the face of fear and uncertainty.
I do not want to trivialize the terrorist threats or the anxiety that all of us feel about the prospect of war. However, this is a valuable lesson for financial advisors. With financial, economic and personal angst running close to all-time highs, it's unreasonable to expect your clients to remain totally calm. But by applying sound financial planning techniques to address real and perceived threats to their portfolios, you can furnish them with choices that will let them take some control.
Here are some basic steps towards easing client fears in times of duress:
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Take financial inventory. Anyone who has served as an executor of an estate knows the true stress of a loved one's passing is compounded by trying to get a handle on the dearly departed's financial picture. Stocks, bonds, mutual funds, insurance policies, IRAs — the account numbers and quarterly statements can be a nightmare to find, let alone add up.
Fortunately, you can assist your clients in organizing their monetary minutiae. There is a free form at 4myemergency.com that you can download and either fill out directly or use as a starting point for further document discussions. The clients will thank you for bringing everything together. You will have a more accurate picture of their financial situation and of opportunities to be of further assistance.
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Inform them that they're worth more than they think. Do you accept 5 percent as a “safe” withdrawal rate from a well-balanced, inflation-adjusted portfolio? If so, my rule of thumb is that bread-winning clients need to provide their dependents an estate worth about 300 times current monthly expenses — especially if college, retirement and mortgage obligations have not yet been funded.
Quote this figure to clients, and then remain silent. Watch their eyes dart back and forth as they attempt to calculate the gap between the figure you have given them and what their personal net estate value would be right now. You now have what is known among the more mercenary salespeople in our profession as a “qualified lead.”
The clients' first response is likely to fall somewhere between denial and despair. You can address the former with a calculator, and the latter with a life insurance policy that is much bigger (and in the case of term insurance, probably more affordable) than the clients would have imagined.
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Help them plan for unexpected disability. Compared to life, annuity and long-term care, disability policies don't attract much attention from financial advisors. But they should: People are two to three times more likely to become disabled before age 65 than they are to die before that age. And before both halves of a couple reach 65, one is more likely than not to lose income because of accident or illness.
An often overlooked candidate for disability insurance is the “high income, higher expenses, no savings” client we occasionally come across. Offering a suitable policy can ensure an injury doesn't lead to indigence.
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Forget the cheap gifts. With apologies to the golf-ball logo printing industry, your clients don't want or need any more throwaway items with your name on them. You can show your concern by giving more serious gifts that address the catastrophes they might face. Disaster kits (like the ones sold at www.coderedkits.com) are intended for the unlikely-yet-still-terrifying events.
But for more common troublesome episodes — a simple roadside emergency kit you can assemble yourself — would tell clients that you really do care about their well being.
If your production is really suffering, duct tape costs just a few bucks a roll.
Writer's BIO:
Kevin McKinley is a CFP and vice president of investments at a regional brokerage, and author of Make Your Kid a Millionaire — 11 Easy Ways Anyone Can Secure a Child's Financial Future. kevinmckinley.com