Smart Money Tips

Important Traits of a Client-Focused Financial Advisor

What’s your definition of financial freedom?

Is it a number on a spreadsheet? Is it having the ability to spend lots of time with loved ones? Maybe a monthslong road trip, enjoying all the national parks with your spouse in a comfortable RV, is your retirement dream.

No matter how you enjoy your golden years, it’s key to have a holistic financial plan that includes all the puzzle pieces – big and small. An experienced financial advisor helps you see it all. She or he acts as not just a planner, but also a financial coach and risk manager. Sticking to the auto theme, it’s like having a pit crew to repair financial problems that arise as well as the help of a spotter atop the track who alerts you to threats and opportunities that lie ahead. 

Recently, I had a client call and ask me if they should finance a new RV purchase or pay with cash. Simple question, you might say. Sure, I could have immediately gone to a financial nerd’s favorite tool – a spreadsheet – to calculate the total interest with financing and compare that to the opportunity cost of outlaying a substantial chunk of cash. But because I know her and worked alongside her to develop a plan, I weighed more information into my analysis. You can never go wrong taking a step back to recognize the bigger picture. 

A broader perspective indeed helps to see all the puzzle pieces. Here are some of the facts of the RV purchase case I considered and why each is so important in the client-advisor relationship.

1. I know the client’s personality type and need for financial security (cash on hand)

What’s been fascinating to be a part of over the last 15 years or so in the advice-giving industry is that an advisor’s job has seemingly morphed from math-centered to part-time psychologist. It is so critical to know your mind when it comes to money matters. We have a financial personality quiz we like to ask clients to take early in their relationship with us. The Klontz Money Script Inventory (KMSI) assessment helps people uncover their true financial beliefs. 

Back to the RV purchase, I was aware of the client’s attitudes about big purchases as well as what their personal balance sheet looked like. Both the qualitative and quantitative aspects were laid out so that the best decision could be made.

2. I know their current monthly cash flow situation and ability to take on a hefty RV payment

While feelings about money are important, if there isn’t enough cash coming in, the answer is sometimes a cold flat-out “no” to the infamous “can I afford it?” question. A good planner must be able to share uncomfortable and disappointing news on occasion. In this case, however, the husband and wife had decent incomes that were generally stable. Even with that extra cash outflow each month, they were in good shape to go ahead and make a down payment and do partial financing.

3. I know about upcoming needs for cash (including their travel plans and an upcoming real estate purchase)

Along with helping with behavioral aspects of financial planning and needing to say no from time to time, constant risk management is required in order to reach goals. Maybe it’s my inquisitive nature and always wanting to know just a little bit more, but I have no problem probing clients about what they need to pay for in the coming months and years. Investment decisions, insurance coverage, and legacy planning all go hand in hand with understanding future cash flow needs.

4. I know the couple’s optimal Social Security filing strategy and the plan we execute to draw down both of their respective set of retirement accounts

Lastly, the rules of the road must be followed to a T. That sometimes means a team effort among the client, the planner, and a tax attorney. Where a planner can take charge, though, is with Social Security strategy, but a thorough understanding of tax impacts and claiming tactics is imperative on the part of the advisor. What so many folks fail to realize is that determining the right distribution plan is much more complex compared to accumulating assets during someone’s working years. Just like knowing all the buttons to push while driving a big RV on the highway, the advisor must possess the knowledge to know what account levers to pull so that long-term taxes are minimized.

I was able to weigh all these factors (and more) when delivering my recommendation. For a major decision like an RV purchase, you cannot just crunch a few numbers, give an answer, and move on. Income, cash flow, risk management, and priorities, among other hard and soft pieces of data, are all x-factors. 

A characteristic of the right financial plan that often goes unappreciated is its flexibility. Think of it like the phrase “strong opinions, loosely held.” The initial plan is, of course, based on facts, goals, and assigning probabilities to uncertainties through risk management.

The next step is to seek out what could go wrong. This couple, for instance, might have a big future financial windfall from an inheritance or business sale. Conversely, health issues might auger a sudden need for a larger liquidity cushion. Being able to pivot quickly is key. 

Ultimately, based on their circumstances, the best decision was to make a sizable down payment on the RV to keep cash at a certain optimal level I determined, then finance the rest for now. But a robust overall financial plan does not end there. Once the couple has met upcoming cash flow needs, we’ll all sit down to revisit the plan to pay off the loan entirely. For now, it’s time for them to embark on exciting road trips and adventures.

That was a lot about me, myself, and I, right?

In the end, it is about the client. All too often the advisor likes to detail their solutions when the reality is that the client is more concerned about their problem. Do you catch the difference? A client-first mindset is required more than anything else.

The Bottom Line

A fiduciary advisor’s duty is to help clients make the right choices based on all knowable factors and assess future risks appropriately. Rarely are there quick fixes and easy answers when it comes to large one-time purchases. Having an experienced and trusted advisor on your side helps you recognize and understand how one decision affects the bigger long-term plan.