Breaking Bad News To A Client About Prior Problematic Financial Decisions: Kitces & Carl Ep 199

How do you handle the situation where a new client has been making, quote, "bad money decisions" for many years, and now you need to be the one that breaks the news? So the example he gave was, uh, uh, like a client who came in in their early 30s.

I guess, like, we'll call him Dan, 'cause it's easier to have, like, a name to, to reference.

Like, Dan the new client comes in in his early 30s, uh, like getting his first financial plan, trying to get his house in order 'cause he's, you know, he's g- getting married soon and starting a family, uh, and wants to have all the things in order.

And so the advisor starts going through his situation, and Dan has, Dan's primary asset is the cash value and a sizable whole life insurance policy that his college roommate sold him 10 years ago.

[laughs] Right.

'Cause that situation happens.

Yep.

And so he now needs to explain that buying a whole life insurance policy as a 23-year-old single guy and saving into it for the past 10 years maybe was not the most ideal wealth accumulation for him.

No, no Roth, no IRAs, no 401ks, 'cause the whole life insurance policy was consuming all of his dollars.

And so the q- the question from the advisor was, like, I, I mean, how do you graciously open this conversation, right? Like, I've got a, I've got a client who may or may not be embarrassed if I have to explain that this was not good.

I don't even know what the relationship is with the original person who sold him the policy, who at least then was his college buddy when he did the thing.

Now there's a fiancee at the table, so we're trying to help them get their financial life in order, and I'm trying to not embarrass Dan in front of his fiancee to explain that maybe Dan didn't make some of the ideal savings decisions.

Um, I know there's just a whole separate conversation around when are we using life insurance and not.

I don't really mean that to be the-

Right

...

the focus here.

Um-

'Cause that would be too much fun

... uh, that, that's just the context of the situation.

But it does come down to, I mean, whether it's the expensive life insurance policy or, like, the mutual funds that was egregiously overpromised and did not deliver at the, the crazy returns that were promised.

The, the crux of this question-

Mm-hmm

... uh, is, like, how do you break the news to Dan? Like, how do you tackle this conversation when you need to open the door to explain, "So about some of the things you currently hold [laughs] that you are using to build your financial future up until this point that may- maybe, maybe were not ideal"?

Yeah.