7 Secrets Your Clients Are Keeping
May 27, 2015 4:55 PM
7 Secrets Your Clients Are Keeping
One of the first steps towards building a relationship with new clients is making sure they're comfortable sharing personal information with you. But what happens when a client keeps secrets that are detrimental to planning -- and their financial health?
"It's kind of like going to the doctor's office and not telling them everything," says Tom Mingone, founder of Capital Management Group of New York. "Our business is a relationship of trust. If there's not mutual trust, it's like any other important relationship in life -- it's very difficult to have any foundation."
Page through to see some client secrets -- and how some advisors dealt with them -- or view a single page version here. -- Maddy Perkins
"It's kind of like going to the doctor's office and not telling them everything," says Tom Mingone, founder of Capital Management Group of New York. "Our business is a relationship of trust. If there's not mutual trust, it's like any other important relationship in life -- it's very difficult to have any foundation."
Page through to see some client secrets -- and how some advisors dealt with them -- or view a single page version here. -- Maddy Perkins
1. SECRET SPENDING
"From what I've seen, spending is the biggest secret that clients keep," says Tim McGrath, founding partner of Riverpoint Wealth Management in Chicago.
Sometimes, clients just may not be sure. McGrath says he always asks clients about their annual spending. "A lot of clients don't know they're spending more than they need to," he says. And if a client hasn't been tracking expenses each year, it can be tough to add up their spending habits.
"It's not the kind of homework that once you get it done, it's done," he says.
Some clients may be hesitant to say where they are spending their money, says Jeremy Kisner, senior wealth advisor at Surevest Wealth Management. "From a planning standpoint, I don't care if they gamble or spend their money in strip clubs," Kisner says. It's just a matter of realistically are they going to be able to retire?"
Sometimes, clients just may not be sure. McGrath says he always asks clients about their annual spending. "A lot of clients don't know they're spending more than they need to," he says. And if a client hasn't been tracking expenses each year, it can be tough to add up their spending habits.
"It's not the kind of homework that once you get it done, it's done," he says.
Some clients may be hesitant to say where they are spending their money, says Jeremy Kisner, senior wealth advisor at Surevest Wealth Management. "From a planning standpoint, I don't care if they gamble or spend their money in strip clubs," Kisner says. It's just a matter of realistically are they going to be able to retire?"
2. HIDDEN AWAY ASSETS
If clients aren't giving all their assets to you to manage, they may not want to disclose their other holdings. But that can be a problem when putting together a comprehensive plan, says Drew Horter, founder of Horter Investment Management in Cincinnati.
He got a tipoff while working with a client on a retirement income plan, he says. "We came up to a certain figure, and after they added their Social security and their pensions, they [still had a] deficit," Horter says. "They didn't tell me until later on that they had other assets with a brokerage firm."
Because of the information gap, he says, "We gave them a recommendation that should have been changed."
He got a tipoff while working with a client on a retirement income plan, he says. "We came up to a certain figure, and after they added their Social security and their pensions, they [still had a] deficit," Horter says. "They didn't tell me until later on that they had other assets with a brokerage firm."
Because of the information gap, he says, "We gave them a recommendation that should have been changed."
3. SPOUSAL DIFFERENCES
One reason clients may be keeping financial secrets from you: They're keeping them from each other, too.
McGrath recalls one spouse who had a troublesome, but covert, credit card problem.
"One spouse was very aware that they had been building up credit card debt. The other had no clue at all," he says.
McGrath said he was forced to liquidate assets to take care of the bill, as the clients had "no means to have any credit card debt."
The conversations that followed were less than pleasant, he says.
"It was a big surprise to everyone except for the person who was spending," McGrath says. "It led to a conversation where there was blood in the water."
McGrath recalls one spouse who had a troublesome, but covert, credit card problem.
"One spouse was very aware that they had been building up credit card debt. The other had no clue at all," he says.
McGrath said he was forced to liquidate assets to take care of the bill, as the clients had "no means to have any credit card debt."
The conversations that followed were less than pleasant, he says.
"It was a big surprise to everyone except for the person who was spending," McGrath says. "It led to a conversation where there was blood in the water."
4. ILLICIT ACTIVITY
It's important to watch where the money a client is placing in your care is coming from, says Mag Black-Scott, CEO at Beverly Hills Wealth Management in Beverly Hills, Calif.
"One of the things we're really concerned with since 9/11 is money laundering," she says. "If I don't know clients are getting money from legitimate sources, I walk away. We definitely don't want to get caught up with inappropriately gamed money."
She says that even though she has never come across any misbehavior herself, she thinks it's important for advisors to be aware.
Her advice: Avoid cash in general. "We do not take cash from clients," Black-Scott says. "It either has to be a check, or a wire, or something like that. Back in the day ... you could sort of guess that maybe [the cash] was not from the cleanest source."
"One of the things we're really concerned with since 9/11 is money laundering," she says. "If I don't know clients are getting money from legitimate sources, I walk away. We definitely don't want to get caught up with inappropriately gamed money."
She says that even though she has never come across any misbehavior herself, she thinks it's important for advisors to be aware.
Her advice: Avoid cash in general. "We do not take cash from clients," Black-Scott says. "It either has to be a check, or a wire, or something like that. Back in the day ... you could sort of guess that maybe [the cash] was not from the cleanest source."
5. FAMILY STATUS
Kisner says he once had a situation where he wasn't aware of his clients' true marital status. "I had [clients] that presented themselves as a married couple and a year later they admitted to me that they weren't actually married," he says.
That created a planning problem, however: "In terms of Social Security, it's important for me to know whether you're married or not," he explains. "So I told them, 'You've got to get married.' And they did."
Other clients may not be upfront about who their beneficiaries are. Mingone says he had a client who was providing for a second family.
"He had a whole other life with a girlfriend and illegitimate child," Mingone says. "It's always a little surprising when you're doing someone's financial planning and don't know who they're responsible for."
That created a planning problem, however: "In terms of Social Security, it's important for me to know whether you're married or not," he explains. "So I told them, 'You've got to get married.' And they did."
Other clients may not be upfront about who their beneficiaries are. Mingone says he had a client who was providing for a second family.
"He had a whole other life with a girlfriend and illegitimate child," Mingone says. "It's always a little surprising when you're doing someone's financial planning and don't know who they're responsible for."
6. DECLINING FACULTIES
One problematic area for advisors can be a client's declining mental faculties. They're "not necessarily a secret," says New York advisor Erika Safran, "but clients don't necessarily share them verbally."
For advisors who are close to their clients, Safran says, it's not going to be a secret for long. Pay attention to signs that an older client may be slowing down mentally, she suggests. "We can tell by the amount of time it takes to get a response, or a situation [where a client says], 'I don't know where anything is.'"
For advisors who are close to their clients, Safran says, it's not going to be a secret for long. Pay attention to signs that an older client may be slowing down mentally, she suggests. "We can tell by the amount of time it takes to get a response, or a situation [where a client says], 'I don't know where anything is.'"
7. BLANK SPOTS
To avoid secrets, Black-Scott and her team have prospective clients fill out a financial planning sheet. She says if they stop filling out the sheet early on, she reconsiders whether or not it's a good choice to work with the client.
Planning "is based on all the information that will allow you to make suitable recommendations for that individual," Black-Scott says. "There have been instances where someone says, 'I'm not giving you that information' -- at which point, I don't take the account. I cannot advise them properly without knowing more about their financial circumstances."
Kisner suggests that getting a client to open up can be as easy as explaining why you're asking for the information in the first place.
"Come from an area of concern for the clients," he says. "They'll want to open up to you because you're on their side. At the end of the day, it's a matter of I want to make sure their financial plan works."
Planning "is based on all the information that will allow you to make suitable recommendations for that individual," Black-Scott says. "There have been instances where someone says, 'I'm not giving you that information' -- at which point, I don't take the account. I cannot advise them properly without knowing more about their financial circumstances."
Kisner suggests that getting a client to open up can be as easy as explaining why you're asking for the information in the first place.
"Come from an area of concern for the clients," he says. "They'll want to open up to you because you're on their side. At the end of the day, it's a matter of I want to make sure their financial plan works."
