When a financial advisor engages a new client, they are analyzing a lifetime’s worth of financial decisions that have brought the client to this point. While this often includes many great decisions, it is also likely that a client has mis-stepped along the way… or at minimum, made suboptimal decisions for their goals. Yet these conversations about a client’s past financial decisions are rarely as simple as correcting a mistake or ‘optimizing’ a portfolio – these are often the best financial decisions a client could have made at the time.
In this 199th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how to have a curious and compassionate conversation about a client’s financial past and help them lay the groundwork for the future.
As a starting point, it’s helpful to remember that every ‘less optimal’ decision carries an emotional and logistical history – at some point, that financial decision seemed to be the client’s best path forward. For example, if a client purchased a life insurance policy that no longer seems to fit their goals, the first question the advisor can ask is what problem the client was trying to solve. The advisor’s recommendation will vary widely if a client purchased that policy as an investment vehicle, was based on a friend’s recommendation, or was to lay the groundwork for starting a family.
From there, there may be an opportunity to recalibrate the client’s finances in the light of their current goals. Often, in the light of current cashflow, insurance, and investment needs, the client may be organically inclined towards change anyway. When possible, advisors can use growth-oriented language, emphasizing how they can help clients get from “here” to “there” with these financial changes – which feels more encouraging and less critical.
