Five years ago, Tom Carstens began working with a new client, a successful executive making $3 million a year. At first glance, he seemed to promise a virtual avalanche of new business. But, after 12 long months, the client had agreed to make almost no investments at all.
Only when the man's wife joined their discussions did Carstens, a partner with Lenox Advisors in New York, get to the bottom of his client's odd reluctance. It seems the executive had grown up dirt poor in the projects of London, and the notion of putting his new wealth at risk paralyzed him with fear. Armed with that knowledge, Carstens was able to nudge his client into taking few small steps, starting with a conservative bond fund, “So, if the world came to an end, he would know he had something to hold onto,” Carstens says.
The Rep as Shrink
Most reps view themselves as some combination of stockpicker, number cruncher, relationship builder and financial advisor. But it's increasingly helpful to throw a dash of psychological expertise into the mix.
This is not to say a rep's job should be talking to clients about their relationships with their mothers. But for many people — financial advisory clients included — money is about a lot more than just dollars and cents or the vagaries of the market. It's a symbol of love, self-esteem, power — you name it. The symbolism runs deep and is shaped by all sorts of complex childhood forces that exert a powerful hold over clients' psyches.
As a result, many clients have highly irrational approaches to money. They can't save. They procrastinate. They overspend. They fear even the most conservative investments, or want to risk it all every day.
What's more, in many cases, clients know they need to change but somehow can't get themselves to do so. “I would say that a third of my clients have an underlying emotional block around money,” says Rick Kahler, an advisor with Kahler Financial Group in Rapid City, S.D., and the author of the upcoming book, Conscious Finance (2005, Foxcraft).
If that's true for your practice, then, like it or not, you've got to deal with those issues. Of course, should someone be suffering from psychological and emotional problems that clearly go beyond money matters, you'd be wise to suggest (gently) that the person seek help from a professional more suited to the task. For most clients, however, your smartest strategy is to get familiar with the types of money dysfunction you're likely to encounter and the best ways to deal with them.
What types of irrational approaches do advisors tend to encounter? Generally, they divide into a few categories, what Olivia Mellan, a Washington, D.C.-based psychologist, in her book Money Harmony: Resolving Money Conflicts in Your Life and Your Relationships (1994, Walker & Co.), calls “hoarders,” those who can't part with their money; “spenders” (just what it sounds like); “amassers,” those who create wealth for the sake of it; and “monks,” those that regard money as evil.
For advisors, the most annoying category might be called “procrastinators” — people who, after hours of meetings and long hard work on your part, fail to follow the plans. Karen Altfest, a financial planner with LJ Altfest in New York, points to a case where a widow inherited a multimillion-dollar IRA from her husband, but has put off signing the documents for rolling the money over to a new series of investments. The inheritance is down by a third, thanks to her inaction, but she still insists she doesn't have the time to attend to the problem.
No matter how nutty clients may seem, “everyone's behavior around money makes sense when we understand their underlying beliefs,” says Kahler. It comes down to what he calls “money scripts” — unconsciously held beliefs about money that guide financial behavior, based on assumptions that generally start forming in childhood. They can range all over the place, from “money is the root of all evil” to “no one will love me unless I give them a lot of presents.”
Therapist Ted Klontz, CEO of Onsite Workshops, in Nashville, Tenn., together with Kahler, conducts workshops for clients with money dysfunction. He points to a successful professional earning “in the six figures” who was unable to make rational investments. He even went out of his way to avoid profitable investments, repeatedly turning away potentially lucrative real estate deals. Eventually, Klontz discovered the problem: As a child, the man had been raised in a broken home. The only stability he experienced came from the local minister, who had inculcated in the boy the idea that the only honorable line of work was to become a missionary. As a result, the man grew up with an overwhelming belief that making money was a sin — and did what he could to limit his own success.
How to go about helping your clients? Start with something really simple. For clients who can't save or, for that matter, can't bear to part with their money, you can set up a system that automatically deposits savings in a brokerage account. For clients who procrastinate, arrange regular face-to-face meetings that cover one or two key issues. Make sure they sign the necessary documents right then and there.
Really tackling the problem, however, involves more work. Mary Carter, a marriage and family therapist on the staff of Charles D. Haines, a multifamily office in Birmingham, Ala., says you have to “look past the numbers and get to know your clients.” One approach is to ask leading questions first to suss out how willing the client is to open up, which then helps you get to the bottom of the problem. Richard Pombo, a partner with William Tell Financial Services in Latham, N.Y., recalls a couple in their mid-50s who had been married, divorced and remarried and were trying to save money. When he asked how many children they had (four), the couple immediately explained the tumultuous story of their relationship.
“I saw they were willing to open up a window to their lives they might not usually divulge,” he says. When Pombo looked over their expenses and noticed they were giving each of the grown children $600 a month, he felt comfortable asking why. The couple eventually came to the conclusion they were trying to assuage their guilt over their divorce. With that revelation, they were able to devise a more realistic budget.
The Money Tree
Carter recommends drawing up a family tree for each client, with information about who all the players are. She uses that to trigger conversations and, also, to get insights into clients' motivations. For example, she recently worked with a wealthy couple who were dragging their feet about committing to a long-range plan. The wife, especially, seemed reticent about discussing financial issues with her husband. Then Carter looked at her notes on the family tree and saw the wife's sister had cancer. When she asked her about it, the woman was able to admit something she'd been afraid to bring up: She wanted to put aside some of their money to help her niece and nephew, but had been wary of telling her husband. That disclosure made it easier for them to work out a plan.
If you feel you need more help, you can team up with a therapist. That could mean developing a relationship with someone in the community you can turn to if you think you're in over your head. Or, like Kahler, you can try a more permanent arrangement. He and Klontz run regular five-day workshops for clients who have emotional blocks regarding money. They also see clients together privately, often for intensive three-day sessions. “It's really powerful when I work with a therapist,” says Kahler.
For example, he recalls one client, a celebrity who was spending his money so quickly that Kahler predicted the man would have to sell his house in five years. When they got together with the client and his wife to hammer out a financial plan, they learned that the client had a highly inappropriate sense of responsibility for just about everyone he came in contact with. Result: He had not only put innumerable family and friends on the payroll, but was also showering them with gifts.
Perhaps the stickiest situations arise with couples. “When people get married, they come from two different families with two different histories regarding money,” says Haines Financial's Carter. Generally, your task is to help couples learn to understand each other and ease them into making compromises. That certainly was the case with Carstens of Lenox Advisors and his reluctant investor, whose background and attitude to money differed radically from his wife's. The husband's impoverished childhood had left him with a morbid fear of letting go of his earnings. His wife came from a privileged home and was less worried about losing money and more willing to take risks. Carstens' conservative investments were smaller rewards than the wife would have liked, but it would “help her husband sleep,” he says. After that, he was able to put some of their money into more aggressive stocks to make his wife happy.
Wallflowers Need Not Apply
What doesn't work in these situations is too much tact. Jeffrey Fishman, president of JSF Financial in Los Angeles, recalls a couple where the wife spent recklessly and the husband watched every penny. Three years earlier, they had devised a conservative savings plan, more suited to the husband's inclinations. But the wife continued racking up huge credit-card bills. Fishman realized the situation couldn't continue and confronted the couple. “It was uncomfortable,” he says. “But, if we're really doing our job as financial advisors, we have to deal with things like this.”
To really do it right, however, there's one more step for you — and it's personal. “You can't understand what the client is going through, unless you've done it yourself,” says Kahler.
That means pinpointing your own money demons and assessing how they affect your decisions. It may even involve seeing a shrink yourself. Kahler, for one, did that and uncovered an array of conflicting messages about money, many of which had affected his professional and personal lives. He took the chance to become both a better advisor and person — not a bad idea.