Advisor outlines her approach to the lifestyle pressures, both wants and needs, that could keep clients from reaching their longer-term goals
Laurel Marie Hickey sees her clients being bombarded. Every day, their social media feeds are pointing them at new lifestyle goals. A dream vacation, a new kitchen, a bigger car. Where once the idea of “keeping up with the Joneses” was about matching the lifestyle of your neighbours, which can be problematic in its own ways, now people are told to keep up with ‘Joneses’ in other countries, other income brackets, or ‘Joneses’ who don’t actually have any of the beautiful things they’re trying to push. The pressure to meet the lifestyle expectations set by influencers and social media channels, Hickey says, has many clients feeling greater financial stress and sometimes prompting a conversation with their advisor about their plan.
Hickey is the Senior Wealth Advisor and Senior Portfolio Manager at iii Global Wealth of Wellington-Altus Private Wealth Inc. She explained how she approaches clients’ financial stresses, whether they’re driven by needs or wants, and how she manages those moments when clients come to her hoping to revise their plans in favour of more monthly cashflows. She talked through the different mechanisms built into client portfolios that allow for flexibility when needs and wants change. She discussed, too, how she lays out the tensions between short-term wants and long-term needs when clients look to take some money out.
“It’s important to speak to the emotions first. You can’t say, ‘let me just look at the math right away.’ Because they won’t feel acknowledged, and they need to feel acknowledged. I think that if someone needs money, if they’re spending differently, that’s a pattern change. And that is information. It is not for us to judge. It’s just simply information,” Hickey says. “There’s two parts to a financial plan: there’s the daily essentials now and the long-term goals. A plan is meant to be flexible for both.”
In acknowledging the emotion behind a desire for a cash withdrawal or a change in contribution amounts, Hickey can find ways to contextualize and understand what’s motivating her clients. She notes the example of a client who is starting a new business, taking a risk that puts some strain on her personal finances. That client told Hickey that they don’t want their children to see them budgeting. Hickey can gently ask why, and outline why a desire to keep up appearances, especially with your nearest and dearest, may not be a rational decision. Even that this client’s children may learn more from seeing their parent budget to achieve a bigger goal.
Hickey notes, as well, that the constant stream of information clients are subject to can produce questions and requests already answered by the plan. Clients may read an article that says they need $1.7 million to retire. While that article accounts for none of the uniqueness in their life, the single tangible number has a power that draws them in. Hickey can show them that they have more than what the article says they need. She can explain why they have more and address both the emotional and financial concerns behind their fixation on one number. Emotional management can help with worries and requests, but there will be times when some money in the plan will need to be drawn down.
When clients need money for single expenses, Hickey explains, she can use the cash buffers baked into their portfolios. Her portfolio models are flexible enough to account for those sudden needs. She explains that flexibility is baked into the models she builds for clients. If the cash buffer isn’t enough, then the portfolio can be rebalanced to generate more cash to withdraw, while maintaining appropriate diversification.
“We refer to this as building in buffer solutions. Having flexibility designed into the model makes a meaningful difference,” Hickey says. “Planning for cash flow needs in advance is always the best approach, and when withdrawals exceed what was anticipated, this is information, a signal that the client’s plan needs to be revisited so that tension is alleviated.”
When drawing down portfolios beyond that cash buffer, Hickey notes that she will tend to keep two anchors of the portfolio in place: alternative allocations and active fixed income. The equities in the portfolio, she says, can be shaved to generate cash where necessary, so long as the overall diversification and balance remain intact. In the case of some clients with greater cash flow needs, Hickey notes that she will allocate securities that pay out yields that can help meet cash flow needs without having to draw down on securities.
Hickey approaches requests for more cash flow, whether through drawdowns or higher yielding securities, without judgment. It’s the clients’ money and it’s her job to provide it for them. It’s also her job to lay out the long-term implications of an immediate cash flow decision. She can lay out exactly what this choice means for their long-term goals, whether that’s a compromise on retirement cash flow, how long they’ll work, or what they’ll need to save once this short-term need is fulfilled.
“It’s important to do a visualization of what that goal is. Just really paint the picture, really live it,” Hickey says. “There are two paths or two tracks right now. And one is the short term and the other is the long term. People are thinking one or the other. It’s both, the tracks merge. You have to speak to both of them.”
