By Cyril Tuohy
Advisors know the feeling: A client comes to them with a request to manage assets, and the conversation eventually turns to personal issues. After two or three visits, out spill more details: the pending divorce, the loan to a deadbeat son, the delicate handling of the rich but mercurial in-laws.
Later, sometimes much later, clients reveal their more embarrassing financial faux pas: the $10,000 real estate investment on a “friend’s” advice that went sour, the money spent on luxuries they could barely afford, the $30,000 in credit card debt at 18 percent interest.
While there’s little danger in knowing too much about a client’s personal financial and family situation, there’s always a risk of knowing too little, advisors said.
“Numbers are the easy part,” said Iowa-based financial advisor Joel Twedt. The difficulties begin when people start talking about their relationships with others, namely their spouse or their children, he said. “People don't like to talk about painful subjects.”
The more advisors know, the more they can help. However, clients continue to withhold information from their advisors and give them the “it’s-none-of-your-business” treatment, according to a recent survey by Securian Financial Group.
While 71.4 percent of respondents said they share all their financial details with their advisors, 28.6 percent said there were certain topics they choose not to share with their advisors, the survey also found.
Ironically, clients want advice and are prepared to hand over much of what they know regarding their assets. At the same time, what they often don’t want advisors to know also revolves around financial issues, advisors said, and that leads to a double standard.
When clients are slow to reveal a key piece of information, it’s because they either overlooked it or they didn’t think it was important. Also likely, it’s because they are too embarrassed to admit their past mistakes.
“Some people are embarrassed to provide information so I don’t ask,” Twedt said, in an interview with InsuranceNewsNet. “Once they get comfortable, it’s amazing what they reveal.”
Twedt, principal at Twedt Financial Services in Lake Mills, Iowa, has been in the business for 34 years, long enough to know that clients will reveal what they want only when they feel ready to reveal it.
So he doesn’t force or pressure clients to reveal what they are uncomfortable revealing, and prefers “pulling” them along instead of “pushing” them beyond their comfort zone.
Advisors like to compare themselves to dentists and doctors. Dentists can’t help patients if patients don’t open their mouths. Doctors can’t issue a diagnosis unless a patient disrobes to let the doctor take a closer look.
“I make sure up front that they know I can only help them as much as they reveal to me,” said Richard Preuss, a co-owner of The Healy Group in South Bend, Ind., who has been in business for more than 30 years.
Meeting the suitability standard required of financial advisors requires a high degree of information, and that information usually comes out rather quickly in the relationship, he added.
Advisors say they’ve heard it all, even when they sense resistance or pushback from clients.
When it comes to divulging details to financial advisors, it is the advisor’s business to know about their client’s situation. If advisors are going to build a holistic, long-term plan for clients, advisors must know the client’s entire financial picture.
A couple of deferred annuities, life insurance policies or savings bonds hanging around in the bottom of the dresser means advisors will adjust the levers differently in other parts of a client’s investment portfolio or other aspects of a client’s financial life.
People say they understand that the more they hide the less an advisor can help, but in practice it’s a different story, said Nicole Tietel, an 18-year veteran of the industry with Winter & Associates in St. Paul, Minn.
Advisors usually assume they have a good relationship with their clients, but clients still hide things, and not necessarily by design.
Some clients forget about an extra life insurance policy or two, or they see their statements but no longer have any idea of what they mean. Others, fully vested in an old pension plan paying them $500 a month for the rest of their lives, may have little idea where the money is coming from.
“People have old retirement plans like socks in the sock drawer,” Tietel said.
Michelle Hall, manager of market research for Securian, said personal matters can have profound effects on a family’s financial stability. Health and marital difficulties rank high among subjects clients choose not to discuss with their advisors.
In fact, more than one quarter of the Securian survey respondents said they carry debt their advisors don’t know about. “They may not realize it, but personal matters can profoundly affect a family’s financial stability,” Hall said.
Advisors said clients who withhold information – whether on purpose or through inadvertence – are short-changing themselves because advisors can’t execute optimal decisions. It’s not fair, either to the client or to the advisor.
“If you have something that you forget, don't be sheepish. Come to your advisor and tell them about it,” Tietel said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].
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