Tips for Teaching Clients How to Save
As an independent brokerage dealer, we have had the opportunity to work with financial advisors and clients across the broadest possible spectrum. Over the years we have learned that there is no such thing as a ‘typical’ investor. Clients range from the uber wealthy to the hard-working, blue-collar family man just trying to save for retirement. We have also learned there is one component of investing common to all: the necessity of saving.
What we do as broker-dealer companies and financial advisors is pretty simple in principle. We help clients grow their money so that they have to rely less on employment income as they grow older. Still, any responsible financial advisor worth his or her reputation knows that investing alone is not good enough. People also need to save.
Teaching clients both the necessity and process of saving is easier said than done. Why? Because we live in a consumer-based economy and culture. People have been trained to believe that spending equates to positive economic activity when it is really not true. As such, many first-time investors have to be taught how to save alongside what they will be putting into stocks, bonds, etc.
Below are a few tips for teaching clients how to save:
1. Start with the Base Amount
It is not possible to begin saving without some sort of starting point. Therefore, the first step in teaching clients how to save is to come up with a base amount. There is no magic number here. Some financial advisors and broker-dealer firms recommend 10% of gross income; others might recommend more or less.
The actual number is not as important as setting it. Adjustments can always be made as circumstances warrant. The point is to come up with a base amount in order to facilitate the start of the saving process.
2. Investigate the Possibilities
Next, financial advisors can sit down with clients and help them investigate the possible vehicles for saving. Just spending an hour looking at different savings accounts, retirement accounts, and other vehicles opens a client’s mind to the vast sea of possibilities. It also encourages the client to begin thinking about the pros and cons of different ways of saving. This makes him or her an active participant in the process rather than someone who simply does whatever the financial advisor instructs.
3. Runs Some Projections
Some people do not save for the very same reason they fail to budget: they do not understand the benefits of doing so. Financial advisors can go a long way toward teaching people to save by running some sample projections. For example, if the client saves $100 a month, do the math and demonstrate that it equals $1,200 a year. Then work in the interest to show how that money would grow over time. The simple process of running a few projections gives clients a more tangible idea of what saving can accomplish.
4. Create Some Incentives
Lastly, we know as an independent broker dealer that some clients prefer to invest without saving – in the knowledge that investing can generate higher returns. Advisors can encourage saving by creating a few incentives. For example, if the client saves a certain amount, a withdrawal can be made for the purposes of putting that money into high-performing investments. The advisor can help balance risk and saving so as to protect the client while at the same time providing an incentive to save more.
Investing without saving is generally not good. As financial advisors and broker-dealers, we all have a responsibility to teach our clients the value of saving alongside investing.
