by Mitch Anthony

I have been amazed at how few advisors I interact with take their clients through a cash-flow analysis. When I ask them about it, most give one of two reasons for their inaction:

  1. Their clients really don’t want to know how much they’re spending, preferring to live in ignorance. Really?
  2. When an advisor did perform a cash-flow analysis, it amounted to a waste of time because clients didn’t provide complete or accurate information. Maybe clients do want to live in ignorance after all.

I recognize that dealing with clients—especially ones who don’t cooperate—can be frustrating. After trying once or twice, you are tempted to give up and move on. However, that approach doesn’t help your clients (or you) long term.

There is no way around it: you need to benchmark where your client is before formulating a financial plan for the future. It’s a key component of Return on Living™, and essential if your clients want to enjoy the best life possible with the resources they have.

The reason is simple: you can’t measure progress until you and your clients have a baseline. Wishful thinking and ballpark estimates don’t constitute a strategy.

A cash-flow analysis exposes more than dollars and cents; it reveals your clients’ regimen and habits—the forces that either create wealth for them, or prevent it. As their advisor, you need to know as much as possible regarding your clients’ habits. In fact, how they respond, and what you learn, may change your mind about whether you really want a person as a client.

Here is a short list of the regimens and habits you’ll want to know about:

  • Automated savings—How much “sustained-saving” is your client engaged in, and what are the specifics?
  • Monthly spending—This is where you might meet the greatest resistance, but it can be where the rubber meets the road. If your client won’t work with you and provide you with this information, maybe he or she shouldn’t be your client.
  • Large purchases—How often does your client make large purchases? Ask for a couple of examples of their last two or three purchases, and the reasons behind them.
  • Travel and entertainment—How much does your client spend a year on travel and entertainment? Does your client have a second home, timeshare, or regular vacation habit and budget?
  • Giving habits—Are there any charities that your client supports regularly? What does your client estimate his or her annual giving to be? What are your client’s goals going forward?

Sometimes clients benefit most from the conversation they want to have the least. Clients need to understand that the habits they had before retiring may need to change. The news could be good if they have more than they’ll need, or bad if they don’t have enough. Either way, you both need to know.

For those planners who would like a more subtle approach for illustrating the impact of spending before actually conducting detailed cash-flow analysis, I’ve devised a non-confrontational method: Owe-Grow-Live-Give.

This approach is designed to show your clients what they’re spending without asking them to disclose what they’re spending. Here are some questions you can ask your clients to get things started:

  • Owe: Are you satisfied with your current debt load, including tax load?
  • Grow: Are you satisfied that your savings plan will allow you to reach all your goals and meet all your obligations?
  • Live: Are you content that your lifestyle spending aligns with your values and goals?
  • Give: Are you content that the proportion of your income and assets allocated to giving appropriately reflects your wishes?

If this sounds familiar, it’s because I’ve discussed this concept before. Because of the overwhelming positive response I’ve received, I am convinced that this approach will make a huge difference in your client relationships.

I’ve developed a simple app (available as part of MyFLPTools) that can help your clients recognize where they are with their own allocation of income. When developing and testing the app, we discovered that once we added the annual income, the money owed in mortgage debt, qualified savings, and the deductible contributions in the “owe,” “grow” and “give” columns, people were amazed by how much of the pie was being consumed by lifestyle (“live”) spending!

Here’s a suggestion for getting the conversation started: “Something we’ve learned in our many years of financial advice is that a client’s habits are more important than a client’s assets. It is those habits that either create or erode wealth. If you don’t mind, I’d like to ask you a few questions about your regimens and money habits.” If you want to learn more about Owe-Grow-Live-Give, click here.

If your clients have formed good habits, they’ll have you to reinforce their disciplines. If they haven’t formed good habits, they will be thankful that you cared enough to want to help them. Your clients might squirm a bit…but they’ll be better off for knowing.

© 2017 Mitch Anthony

Mitch Anthony is the founder and president of Advisor Insights Inc.and the Financial Life Planning Institute, the leading provider of financial life planning tools and programs for the financial services industry.

For almost two decades, Mitch and his team have provided training and development for both individual advisors and major organizations throughout the world. Mitch personally consults with many of the largest and most-recognizable names in the financial services industry on both financial life planning and relationship development.

Mitch is a consistently top-rated presenter who has spoken to groups ranging from 10 to more than 10,000. He has been named one of the financial services industry’s top “Movers & Shakers” for his pioneering work. Through the Institute, he has partnered with Texas Tech University, the University of Georgia, and Utah Valley University to develop financial life planning programs for their undergraduate programs.

Mitch is a sought-after expert for the media, and a regular columnist for Financial Advisor magazine. His columns have appeared on CBS MarketWatch and in the Journal of Financial Planning. His original comic strip “Stanley Brambles, CFG (Certified Financial Guru)” has appeared monthly in the print edition of Research magazine. Mitch is also host of the daily radio feature, The Daily Dose, heard on over 100 radio stations nationwide.

Mitch is also the author of many groundbreaking books for advisors and consumers, including perennial bestseller StorySelling for Financial Advisors, cited by “Financial Advisor” magazine as the number one “must-read” book for financial professionals. Mitch’s other books include The New Retirementality (now in its 4th edition), From the Boiler Room to the Living Room, Your Clients for Life, Your Client’s Story, and The Financial Lit-Kit: The Cash in the Hat, The Bean is Not Green, and Where Did the Money Go?. For information on these books and more resources, click here. Contact Mitch at [email protected].