I once met a recently widowed wife of a Kodak retiree (in a former life, we used to have the contract to advise all of their staff). She was livid with her recently deceased husband, whom she had just found out had £100,000 stashed in savings, she knew nothing about.
“I cycle everywhere. What would it have cost him to have let me have a new bike. Now he is dead I can finally have one, but I have ridden the same clapped out, three-speed for four decades.”
Some advisers believe that they are helping all clients. In reality due to the nature of how the majority of advisers charge, they are largely dealing with savers rather than spenders.
Adviser exams and regulations spend a lot of time focusing on how to get a client to make a budget and stick to it. To save money regularly to build capital for the future.
It is unlikely though that most advisers ever meet the type of person who needs this kind of help, the individual who is battling to get on top of debt and start saving money.
Financial advice from a qualified individual in the UK is expensive and because of that you either pay the sort of recurring flat fee that most people can’t afford or more likely, you pay a percentage of your wealth and therefore need lots of surplus money in the first place.
So, for most of us we run businesses with clients who have surplus money and spend less than this money could maintain. They are the frugal, the modest, the nervous and the safe.
The challenge for most of us therefore is how to encourage our clients to spend their money, or if they find that too hard to give it away.
We use cashflow modelling with every client to show them what their financial future looks like. Unlike most the Timeline cashflow modelling software shows our clients their future plotted against every set of economic conditions since 1915. This means that they can see the worse case scenarios as well as the average ones (most software just shows an average or single line projection).
This should be enough.
If the cashflow graphic shows that you are on track to have surplus money in later retirement, why wouldn’t you; spend more now, give more away, retire earlier? Whatever it is that both motivates you and reduces the slice the taxman takes when you reach the end of your cashflow chart (whenever that is), what would stop you?
There are, in reality, a host of factors preventing clients from taking the right advice. If it is to gift more away there are often concerns about how the next generation are going to use the money. This can be overcome by retaining control through trusts.
The factors that prevent people from spending money on themselves are less easy to address.
Imagine for a minute being a lawyer from a religious family background. You probably carry with you some very deep seated guilt about spending money on yourself. You might be embarrassed about your wealth relative to the generation that went before you and possibly the family members that are still around. You might not feel worthy of the wealth that you have accumulated which might have grown largely as a result of the time period when you were investing. You probably worked all the hours at your career and never had a lot of time to spend on yourself. As a result, you probably don’t even know how to spend more money than you currently do.
Good luck unpicking that as an adviser.
All we can really do is gently nudge and cajole. We can keep bringing the problem back to the table for discussion and suggesting solutions.
Often the most effective way to start the process is to start small. Maybe with a treat in the UK that is above the usual budget. Maybe with a flight upgrade on the next long-haul flight. Then asking what it felt like to do it; both positive and negative and discuss both.
If a further nudge is needed then you can do worse than to read the latest book from the best writer on personal finances, Morgan Housel:
The Art of Spending Money by Morgan Housel – Harriman House
Our advisers are beavering away building financial plans for our clients and coaching them into spending/giving the right amount of their money. They do this from our offices in Hook, Hampshire and throughout the UK.