After sitting with a client for an hour or two discussing the financial plan, it seems like the advisor and client are on the same page.  They discussed the plan that needs to be implemented to achieve their goals.  They reviewed the Monte Carlo results and how, if they stick to the plan, the client will have a 95% chance of achieving their goal of retiring early.

The client’s current situation dictates that if they stay on their current path, they will have to return to work after only 5 years of retirement because their money will run out.  As a result, the client agrees that they will watch their expenses, stop touching their principal and  commit to the plan.  Upon conclusion of the meeting, the Advisor executes their investment strategy only to find out a month later that they must sell to raise cash because their client’s AmEx bill needs to get paid and there isn’t enough cash to cover it.  The client is tapping into their principal… again.

A frustrating truth in the financial world is that clients often don’t follow their carefully crafted financial plans. Even the most meticulous plan can gather dust on a shelf. Why is that? Consider the hidden reasons behind this common phenomenon. Understanding the reasons behind this disconnect can help advisors bridge the gap and ensure their clients achieve their financial goals.

Reasons for lack of execution:

Miscommunication:

Sometimes, the disconnect stems from a lack of clear communication between advisors and clients. Clients may not fully grasp the intricacies of their plan, leading to confusion and disengagement.  Transparency, clear communication, and celebration of progress are essential for building trust and maintaining momentum.  On the other hand: jargon-filled explanations, overly technical documents, or infrequent check-ins can leave clients feeling lost.   Did the plan feel like a technical document, or a conversation? Did your meeting with your client include complex financial terminology, unrealistic expectations, or poorly communicated goals?

The Emotional Elephant:

Our relationship with money is complex and personal. Financial decisions are often laden with emotions like fear, guilt, and uncertainty.  Spending decisions are often driven by emotions like fear, anxiety, financial stress, or excitement when faced with tempting offers.  This can lead to a sudden desire for retail therapy or something they can’t afford.

Some clients might struggle with guilt or fear when it comes to saving or investing, leading to procrastination or impulsive spending. Others might not fully understand the long-term benefits of the plan, leading to a lack of motivation.

Ignoring these emotional undercurrents can lead to resistance and sabotage. Acknowledging and addressing these emotions, offering support and guidance, can create a safe space for clients to navigate their financial journey authentically.

Life changes:

Unexpected expenses, unforeseen circumstances like job loss, illness, or family emergencies can derail even the best-laid plans. Clients may need to adjust their plan to accommodate these changes, and flexibility is crucial. The key is to build flexibility into your plan, allowing for adjustments without abandoning the bigger picture. While we can plan for some contingencies, life often throws curveballs that require adjustments and flexibility.

The Implementation Gap:

Creating a plan is one thing, execution is another. The transition from theory to practice can be overwhelming for clients, especially if the plan involves significant lifestyle changes or complex financial maneuvers.

Did the plan offer practical steps and tools to navigate daily decisions? Leaving clients to figure out the “how” can lead to overwhelm and inaction. Providing concrete, actionable steps and readily available resources empowers them to translate the plan into real-life behavior.

Lack of motivation:

The initial excitement of creating a plan can fade over time, especially if the goals are long-term and require consistent effort. Clients may need ongoing support and encouragement to stay on track.

Was the plan truly aligned with the client’s values and goals? Was it presented as a strict set of rules, or a collaborative journey towards their dreams? Intrinsic motivation, fueled by a clear connection to their aspirations, is key to sustained commitment.

The “Set-It-and-Forget-It” Misconception:

Financial planning isn’t a one-time exercise. Markets change, lives change, and goals evolve. Clients need to understand that their plan is a living document that needs regular review and adjustments to stay relevant.

What can Advisors do to help their clients?

Practice clear communication:

Explain things in plain language, avoid complex terminology, and regularly check in with clients to answer questions and address concerns.

Connect finances to values and goals:

Remind clients why they are doing this, and how their financial decisions align with their aspirations.

Keep it simple and actionable:

Break down the plan into smaller, achievable steps and utilize tools and resources to make implementation easier.

How a Financial Coach can help.

Financial Coaches help clients build healthy financial habits to reach their financial goals. They focus on behavior change and mindset by addressing the day to day management of personal finances.

Provide financial literacy:

Clients with limited financial knowledge may struggle to make informed decisions and manage their finances effectively. Providing financial education and resources can empower them to take ownership of their financial plan.

Bridge the communication gap:

Helping the client understand the plan in more detail and how to implement it will empower and motivate the client to act.

Offer ongoing support and guidance:

Be a partner to you and your client in helping them in their financial journey by helping clients execute on the day to day so their plan remains intact.

Address the emotional side of money:

Explore clients’ feelings and beliefs about money and guide them through potential anxieties or guilt associated with financial decisions.

Focus on progress, not perfection:

Celebrate small wins and remind clients that every step forward is a victory to keep them motivated.

Financial coaches can provide the client with the additional time needed to address the emotional issues tied to a financial plan.
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