- September 2020
- June 2020
- April 2020
Sep 26, 2018
As any of my students are likely aware, I don’t do any for-profit financial planning. I try to leave that to my students, as much as possible. However, it sometimes happens that a friend, knowing what I do for a living, will reach out to me with a financial question.
A national level consumer lender reached out to Nick, offering two different debt consolidation loan packages. The lender focused on the amount of debt Nick was carrying, and wasn’t very forthcoming with details about their own offerings. Nick had been considering a debt consolidation loan, and thought this might be a good idea. The lender described to Nick the monthly payments that he would have to make, and the time frame over which he would be making those payments.
Nick texted me to ask if this would be a good offering. I know Nick well, but I asked him a few questions about his debt load and his creditworthiness. It turns out that Nick was carrying a substantial amount of debt relative to his income.
What Nick had not considered was the interest rate on the loans that were being offered. While this sounds like a question that anybody would ask, it is not something that Nick asked. Nick is a university-educated fellow, and certainly has the capacity to ask questions about financial products. The two rates on the loans being offered were 20% and 30%. Had Nick not reached out for help, he would have never discovered the rates, and would have paid thousands of dollars in extra interest.
Nick has a financial advisor; we might think he would have been comfortable reaching out to her about this matter. My concern here is – how many of your clients would be in the same position? They might borrow money at very high rates, and never tell you about it. This happens for a variety of reasons. Sometimes people don’t want to admit their ignorance. Some clients feel they will be judged for poor financial decisions. Some clients might think they are bothering their advisor. In Nick’s case in particular, he has previously complained to me that he finds his advisor uses too much technical language.
This story has a happy ending. Nick ended up dealing with his bank and getting a debt consolidation loan at a much more manageable 8.5%. (We can separately debate the merits of debt consolidation loans; I am not always convinced that they are the best solution.)
I hope your clients are comfortable reaching out to you. Do you talk down to your clients? Do they feel like they are using your valuable time? Do you use too much technical jargon, or make concepts too complicated? Communicating with your clients in a way that makes them feel valued will ensure that they reach out to you in times of financial need, which will create better client relationships.