Managing Your Financial Plan: Ride the Wave or Change the Course?

As fiduciaries, our responsibility is to act in the best interest of the families that we work with. For this reason, any recommendation that we make is based on their goals and risk tolerance. However, what happens when turbulent times come around and clients want to throw their plan out of the window?

Assess the situation 

Is the client having an emotional response or is their risk tolerance changing? Most of the time, it is an emotional response, and reviewing the plan in place with more of a long-term scope reduces the need to pivot.

Recently, a client called us asking to sell a portion of his invest­ments. He was worried about the market and wanted to be a little more conservative. After discussing his situation and concerns, we reviewed his portfolio.

We considered his request related to his overall plan, accounting for all his assets, and realized that there was no need to sell as much as he wanted based on his plan and true overall risk tolerance. We decided to connect with his CPA because the client mentioned a piece of real estate that he had wanted to sell but knew there would be a loss, so he continued to hold off.

Now was the opportunity to do both: sell the property and take some large unrealized gains on stocks to offset and accomplish both goals. Then we reworked the overall strategy and moved a portion into more income-producing assets.

Most financial advisors don’t have access to their clients’ entire financial picture. This means that an advisor may process this client request with a siloed view and blindly trigger unnecessary consequences in the process.

 A coordinated approach 

What do we mean by coordination? It means having the client’s entire financial picture. When we coordinate assets, we consider their location, diversification, and concentration and connect with other advisors like CPAs and attorneys. We analyze performance and identify a client’s income goals. And then, we unify the assets and goals into a single, comprehensive plan.

To create a comprehensive plan, it is essential to map out anticipated expenses, then build a family portfolio that generates the income needed in retirement while achieving other wealth goals. Think about this as reverse-engineer your income goals to determine the appropriate assortment of investments.

 Other tips to stay prepared

There is no one solution when situations like these arise. We have found that the tips below help guide both the advisor and the client towards making a sound decision that is less disruptive to the overall plan.

1. Know and understand your client’s full financial picture – Knowing that our client needed to sell an investment property allowed us the opportunity to accomplish more than one goal and help mitigate a large tax burden. Talk with your client and gather information from their outside assets. We find a net worth statement to be the most helpful tool for this step.
2. Walk your client through the risks of making a haste decision – It is normal to have a knee-jerk emotional response to a situation and want to act on it, thus altering your plans. Our job as advisors is to help clients understand the risks involved.
3. Adjust and pivot – If the client has made a final determination, follow through with the new plan. Risk tolerance changes over time, and the portfolio should adjust along with that.

Empathy goes a long way

As professionals in the field, we must remember that empathy goes a long way. There will be emotional decisions, and there will be changes in risk tolerance. When confronted with a concerned client, make sure to put yourself in their shoes. It’s their wealth, their legacy, and their family’s future at stake.