In the late 1960s, the Rolling Stones were one of the most popular rock bands in the world, yet they were struggling financially. Enter Prince Rupert Loewenstein, a Bavarian aristocrat who served as the band’s financial advisor from 1968 to 2007. Under Loewenstein’s stewardship, the Stones become one of the most profitable bands in history. Loewenstein’s new book, A Prince Among Stones, offers insight into how an advisor can manage “rock star” clients.
You might not have any clients with incomes as high as Mick’s or Keith’s. But, says, Jasmin Bergeron, a Montreal-based director of the MBA program in financial services at l’Université du Québec à Montréal, there are ways to help high-income earners get their spending habits under control:
1. Use graphics
Visual aids, such as charts and graphs that illustrate the effects of excessive spending, can hit home with some clients.
Your firm likely has access to specific templates or data-visualization software that you can populate with your client’s numbers to bring home your message.
For example, you might generate a graphic illustration showing how your client’s cash flow could dry up over the next five or 10 years if they continue to deviate from their financial plan. Place that chart beside a graphic that shows the long-term benefits of compound earnings from a low-risk investment.
2. Tell your clients: “Pay yourself first”
Suggest that your client sign up for an automatic savings plan, in which a given amount is debited from the client’s chequing account and deposited into a savings account every payday.
Another strategy to encourage saving, Bergeron says, is to convey to clients the idea that “a dollar spent is two dollars earned.” In other words, if your client wants to buy a new car for $30,000, he or she will need to earn $60,000 in actual income to be able to afford that purchase.
Employing this formula will help your clients make more strategic choices about how they “splurge” in the future.
“It’s part of a bigger behavioural change, in which advisors can help their clients,” Bergeron says. “Enjoying money is important but so, too, is saving.”
3. Keep tabs
Tell your spendthrift clients to try using only cash (or debit) as much as possible, as opposed to using credit cards. A good rule: if you don’t have the cash, don’t buy it.
One way to reduce spending is to show clients where their money is going. Have your clients save receipts from purchases made during a typical two-week period. Tabulate the total and then project that total for the year. You can then compare the total amount of money spent relative to the client’s income for the year.
Seeing the imbalance just might help your client put a cap on his or her diva-like habits.
4. Suggest a reading list
Put together a list of personal finance books that you think might resonate with your clients.
Bergeron suggests The Wealthy Barber by David Chilton as a must-read for those looking to get a handle on their personal finances. (Chilton’s recent follow-up is The Wealthy Barber Returns.) Other good reads include: The Intelligent Investor by Benjamin Graham and Debt Free Forever by Gail Vaz-Oxlade.