To help clients save and invest efficiently, you need to fully understand their financial lives. Along with asking about assets, debts and investments, you need to pinpoint their good and bad financial habits.
To do this, introduce the concept of cash flow planning, which involves helping clients optimize their incomes by setting short- and long-term spending goals. If a client wants to pay down debt before retirement but is overspending, for example, you can show him he needs to reallocate his monthly income over the short-term by tracking his cash flow.
But before pitching a budget overhaul, consider these tips from Stephanie Holmes-Winton, CEO of The Money Finder and creator of the Cash Flow Planning Designation.
#1: Explain the purpose of cash flow management
Explain why cash flow management is useful and how it can be just as important as reviewing portfolios. It’s also key to tell clients that cash flow management involves much more than tracking how much you spend versus how much you make (See: Slideshow 1: Introduction to cash flow management)
Try offering an example of how such planning could help a client more regularly keep tabs on whether she’ll meet her longer-term savings goals (For more, click here).
#2: Explain your intentions
Clients could be afraid you’ll pass judgment if you know how they handle their cash on a daily, weekly or monthly basis. And they could resist opening up to you as a result. So, when attempting to gather accurate data on people’s cash flow and debts, phrase questions carefully.
Don’t say: “Now I’m sure debt isn’t an issue for you. But just in case you’ve got problems with your debts or can’t manage your cash flow, we should probably discuss them.”
Do say: “Many Canadians are retiring in debt and I want to I want to ensure that the assets you’ve worked hard to accumulate aren’t at risk. By what year are you hoping to be completely debt-free? And, do you think you’re on track?” (For more, click here)
#3: Show clients their work is paying off
The results of cash flow management are easily quantifiable. Clients usually set goals such as reallocating their monthly spending, starting emergency funds or saving for vacations, so you simply need to show them how close they are to meeting their goals.
You can also help clients develop written plans that include timelines and lists of steps they need to follow; and you can review these plans regularly. Say you’re helping a couple who makes $8,500 per month, but who also have about $300,000 of total household debt. If they’re spending more than they make, you can help them determine where they need to cut spending and whether they need to reorganize their debt. Part of that cash flow plan will be tracking how much they put toward their debt, how they allocate the rest of their cash and how close they are to their debt repayment goal (For more, click here).
#4: Keep clients focused on your value
Over time, clients can forget why they’ve bought certain products, such as insurance policies that they pay for each month. Often, this means they’ve lost sight of the trajectory of their financial plans and of the value of their portfolios.
Cash flow plans typically involve shorter-term goals and more regular check-ins. This gives clients something more immediate to focus on, which helps them understand your value and how you’re helping them build wealth (For more, click here).