Financial planning: honest conversations critical

Honest conversations with clients have never been more critical and could have prevented the panicked 'cost-cutting' strategies most consumers have embarked upon in these troubled economic times.

Consumers are panicking as the disparity between their income and expenses becomes more real every day. Financial advice has never been more necessary in terms of addressing these harsh realities: motivating and encouraging consumers to change their usual spending behaviour and, above all, having crucially honest conversations about their choice of lifestyle.

And, while our clients all embark on dramatic 'cost-cutting' plans = sacrificing everything from their houses to crucial insurance policies = one has to ask if a greater amount of 'reality checking' on the part of financial advisors together with their clients could have prevented many of the negative economic challenges our country currently finds itself in.

Short-term fix

The harsh reality facing intermediaries is that most cost-cutting solutions address current financial woes and are not effective in creating financial independence in the long run. Such advice should have already been dispensed in the financial planning process and when one first became aware of disparate lifestyles choices and income earnings. Nobody likes to hear that they can't afford to keep up with the 'Joneses', and yet this is the type of honest conversation intermediaries need to be having with clients; challenging them to reassess their lifestyle and adjust their budget based on their personal financial reality.

Challenge for intermediaries

Intermediaries face an enormous challenge in this regard. The average South African is not particularly financially literate, having little basic understanding of the budget process and the responsibility behind the sound management of hard earned money. Sound financial planning goes against the principles and behaviours of 'consumerism' we find ourselves immersed in. Advising someone to merely 'cut costs' by streamlining their portfolio therefore doesn't go to the heart of the issue = the traditional mindset and corresponding 'irresponsible' behaviour needs attention.

This is ultimately where intermediaries are required to step in: asking the difficult questions about where exactly the client's money is being employed= and why; challenging one's client not to go out shopping when their self-esteem is low, but rather to save = focusing on what these actions will empower and enable in the future.

Financial intermediaries have a great responsibility and opportunity to advise clients going forward. We need to guide our clients through this very emotionally-charged time, and assist them to change their often irresponsible lifestyles and financial behaviours. By educating them about their income; showing them the potential they can create by saving and/or reducing debts, we can assist in creating a new generation of selective, realistic consumers that has taken conscious and planned responsibility for their financial actions and decisions.

Financial empowerment

That being said, to achieve this we will have to commit ourselves to engaging in frank honest conversations with our clients = asking the difficult questions, pointing out the uncomfortable facts, demonstrating the harsh future consequences. It is through these conversations that we will prove the true value of the intermediary and, in so doing, go beyond provoking 'cost-cutting' reactions driven by fear and create a real foundation for financial empowerment in our country.