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When clients face overwhelming situations such as accidents, the loss of a loved one, or a life-altering diagnosis, financial advisors play an essential role in providing reassurance and maintaining financial stability.
Recognizing the limits of their expertise, many advisors acknowledge that providing psychological support may fall outside their realm. By partnering with professionals well-versed in coping strategies such as mental health professionals, retirement coaches, and grief counsellors, advisors can better equip clients with the necessary tools to overcome emotional barriers, make sound financial decisions, and ensure their clients receive the comprehensive care needed to weather any crisis.
It All Starts With Planning
One crucial aspect of financial planning often overlooked is the need to prepare clients for potential family emergencies. Advisors should emphasize the importance of planning for unforeseen events by asking "what if" questions and discussing the potential impact on their financial well-being, says Steve Davis, Wealth Management Advisor at Greenleaf Trust, Kalamazoo, Michigan.
Conducting an Asset Sustainability Analysis can help assess the impact of life events like loss of income, disability, or long-term care needs. Ensuring clients maintain appropriate insurance coverage, such as term life insurance and disability insurance, and considering long-term care insurance, can provide a safety net during challenging times. Moreover, reviewing asset titling and beneficiary designations, along with up-to-date estate planning documents, is essential. “A long-term, disciplined approach that considers various life scenarios can lead to improved financial security and peace of mind for clients and their families during turbulent times,” adds Davis.
According to Alina Sohng, Wealth Advisor at Bay Area Adero Partners, when it comes to helping clients navigate stressful situations, such as the loss of a loved one, accidents, and emergencies, advisors should avoid employing a single strategy across all of their clients, but rather, identify and approach each client based on their individual preferences.
Say a long-time client just lost their spouse to cancer. Clients with more logical mindsets may take less time to make decisions while keeping their emotions to themselves. As an advisor, creating a checklist or timeline may enable them to stay organized and work through action items at their own pace says Sohng. On the other hand, clients who tend to be more emotional have longer decision-making windows and may express their emotions more outwardly. To better assist these clients, advisors may need to check in with them more frequently to help ensure that time-sensitive items remain on track.
Whenever advisors guide clients through stressful situations, it may be helpful to visualize and treat them as friends or family, says Sohng. “Advisors should strive to be a solid foundation that they can rely on while remaining patient and empathetic,” says Sohng, who recently blogged about family emergencies on Adero’s website.
The Role of Active Listening and Empathy
With decades of experience guiding clients through life's unexpected challenges, Dale Terwedo Founder and CEO of Edmonds, WA-based TFS Advisors recalls an experience early in his career with an sports-oriented couple from the Pacific Northwest. The husband, "Bob," was a fit and healthy architect who loved soccer and skiing. “Although hesitant, he eventually purchased a disability contract from me, not anticipating he would ever need it. Unfortunately, he suffered a stroke that temporarily affected his ability to draw and required regular physical therapy. As the primary breadwinner, the couple grew increasingly worried about their finances,” explained Terwedo.
Terwedo worked closely with them throughout the claims process, but more importantly, focused on listening and empathizing with their situation. By understanding their unique challenges, he could provide tailored solutions and help them see beyond their current struggles. The client relationship remains clients to this day and the couple still leads an active lifestyle.
As with all his clients, Terwedo follows a proven approach: Listen intently, gain a deep understanding of their circumstances, create a comprehensive plan, allocate resources effectively, monitor progress, make adjustments when needed, and repeat the cycle. While this method may be standard among professionals, the key is a genuine desire to engage in financial planning. By committing to this approach, advisors can measure outcomes effectively and help clients navigate life's many ups and downs, says Terwedo, who is also a Certified Professional Retirement Coach.
A Team Approach to Problem Solving
A family in California is currently facing a challenging financial situation as their parents' health declines and expenses rise. The situation has turned into a minor family emergency as the father recently entered hospice and the adult children are grappling with the decision of whether to sell their family home, which is no longer occupied by their parents. Selling the house would be the simple option, but it would also trigger a significant taxable gain above the exemption amount, resulting in a $200,000 tax bill.
To make an informed decision, the family's financial advisor, Rob Schultz, Senior Partner & Wealth Manager at NWF Advisory in Encino, CA brought in a CPA to assess the potential tax implications of selling the property. Schultz also involved a realtor to evaluate the home's fair market value and explore alternative options, such as renting the house or hiring a caretaker.
In this complex situation, the family must weigh the pros and cons of each option. Ultimately, the decision rests on the family's priorities. While the financial implications are significant, they must also consider the emotional and practical aspects of selling the family home during an already challenging time. An essential factor to consider is that the surviving spouse could sell the property after the father's passing with no tax liability. Balancing these various concerns and weighing the known tax burden against potential risks will help the family make the best choice for their unique situation.
Schultz's peer advice: “Sometime advisors just consider the financial and discount the emotional aspects. You have to factor in those sleepless nights, the back and forth of weighing a big decision. You can’t put a dollar value of those factors. It’s important to weave in a holistic view of the situation which often takes more active listening and more quality time spent with the client.
Entering the Decision Free Zone
When clients face significant life transitions, such as an unexpected divorce, the loss of a loved one, or an unplanned retirement, it is essential for financial advisors to recognize the interconnected nature of personal and financial aspects. Lisa A.K. Kirchenbauer, founder of Omega Wealth Management in Arlington, VA, emphasizes that these challenging transitions can significantly impact both emotional well-being and financial decision-making capabilities.
During these high-stress situations, clients may experience cognitive difficulties that affect their ability to process information effectively. “Financial advisors need to be mindful of the potential temporary decline in a client's cognitive functioning and provide the necessary support. To do so, it is crucial to slow down the process, actively listen to clients, and allow them the space to express their thoughts and concerns. By taking a patient and empathetic approach, advisors can better assist clients in navigating these complex transitions and making informed financial decisions,” says Kirchenbauer, who is also a Certified Financial Transitionist (CeFT) and trained to guide clients through significant life transitions such as the loss of a loved one, divorce, sale of a business, or a substantial increase in wealth.
When faced with family emergencies, clients often find themselves overwhelmed by the myriad of financial, personal, or business decisions they need to make. To address this challenge, Omega Wealth Management has developed the "Decision Free Zone" process. Kirchenbauer, explains, "Our goal is to empower clients to make informed choices by breaking down the decision-making process into practical steps."
The Decision Free Zone begins by encouraging clients to take the time they need to process their thoughts and emotions. Kirchenbauer emphasizes, "By allowing them to express their concerns and identify priorities, we can help break down the decision-making process into manageable bite-sized pieces. These become the new building blocks to reassure that our clients feel supported as they navigate the financial challenges that arise during family emergencies."
Employing Patience and a Human-Centric Approach
In addressing family emergencies, financial advisors must strike a balance between offering solutions and actively listening to their clients. Rushing to solve problems before clients fully understand their situation can be counterproductive. “It is detrimental to any financial plan to react emotionally to an emotionally-charged situation. This is true for both clients and advisors,” says Terwedo.
Advisors should foster a collaborative environment, recognizing that a prescriptive approach may not always be the most effective. “Sometimes, doing nothing is the best antidote to a stressful situation,” says Omega’s Kirchenbauer. “Tailoring a plan to clients' values and goals can empower them to stay committed, even during stressful times. With multiple potential paths to success, finding one that resonates with the client and encourages patience is key.”
“Sometimes the psychological pressure is above our pay grade as advisors, so partnering with someone who knows that language and how to help clients with those coping skills is key,” says Cynthia Luna of Moon Shot Financial Group in Waxahachie, TX.
Maintaining a holistic perspective is crucial when guiding clients through challenging times. Achieving happiness in retirement requires addressing both financial and non-financial aspects of life. While some clients may have ample financial resources but lack contentment, others with seemingly just enough may feel more fulfilled due to their mindset. According to Terwedo, a retirement coach can play a valuable role helping clients bridge the gap between financial planning and personal well-being. This can ensure that clients receive comprehensive support and fosters collaboration between advisors and coaches for optimal client outcomes.
Greenleaf Trust’s Davis emphasizes the importance of a human-centric approach when guiding clients through challenging life transitions. Davis summarizes his approach, "Be a caring and empathetic human being. Don’t be afraid to show emotion and genuine interest in your clients' well-being, as they feel better when they feel heard and understood." By acknowledging clients' emotions and catering to their unique needs, advisors can build trust and effectively support clients during difficult times.
Related: Forced To Retire: How Advisors Help Clients Recover and Reboot Their Lives