Decision points in a financial practice
It’s Thursday evening, 6:30 PM and you are awaiting the arrival of two prospective clients, an engaged couple Josh and Cynthia (fictitious names). Josh is a nurse at the local hospital, and Cynthia recently graduated from dental school a year ago. In your pre-meeting phone call, they made it clear that at some point they want to talk about retirement planning, it's too early to begin that conversation.
Josh and Cynthia represent what can be a substantial part of a young financial service practice as they are two early career professionals with high earning potential but at this stage, have few investible assets.
During the meeting, you learn about their goals and objectives which include starting a family and buying a house. Josh is up for a promotion to be a lead nurse and increase his pay from $64,00 to $86,000. Cynthia is currently making $90,000 plus bonuses between $3,000 and $5,000 a quarter as an associate dentist and would ultimately like to start her own practice. They both have retirement plans available through work, but neither one has started saving in them yet. As they talk more about their goals and future aspirations the meeting is brought back to reality when Cynthia reaches for a folder and pulls out a stack of papers. Cynthia slides the paperwork across to you face down and says, “before we can focus on these things we have to sort this out.”
As you turn the papers over, you can feel the tension in the room as Cynthia’s eyes begin to water. You turn the papers over and shuffle through them. They are statements, student loan statements. As you flip through the pages, you add up the balances in your head. Cynthia has just over $350,000 in student loans, while Josh has almost $85,000 in student debt.
Josh says “It’s overwhelming to think of how any of this possible with what we have to pay to our loans. No one seems to know how to help, and it feels like we have no future.”Cynthia adds, “My dad as offered to help me with the debt, but I’m not sure I feel comfortable with him doing that. I mean, we're making good money, I’m almost 30 years old, I shouldn’t be taking from my Dad’s retirement. All my friends are in the same boat, and we don’t know what to do.”
Do you continue or walk away from the client?
At this moment you realize that the meeting and planning opportunities have taken a detour. As an advisor, you can see the potential in Cynthia & Josh. They currently earn nearly $200,000 a year, Cynthia wants to start her practice, and they are set to receive a sizable inheritance as some point in the future. It’s clear that the key to securing this relationship and helping Cynthia and Josh reach their goals is going to rely upon how they manage their student debt.
You know that given the fact that they have little to no assets and negative net worth, many advisors would merely shake their hands and wish them luck letting, them know that they are here to help after they pay off their loans and ready to start saving. You also know that these two would make great long-term clients, as over time they will need financial advice about disability insurance, life insurance, retirement savings, college savings for their kids, employee benefits, and home purchase.
What you decide and how you proceed can make or break your practice.
On the one hand, taking Cynthia and Josh on as clients are going to require you to provide specific specialized advice on student loan repayment that may not be a subject matter than you are well versed. While you may understand debt pay down strategies, student loans have unique terms, collection practices, as well as forgiveness options that can make advising on them uniquely different from traditional debt management. Advisors who provide advice in good faith regarding refinancing the debt, or aggressively paying more on higher interest loans could be creating liability for themselves if they do not fully understand and evaluate the various repayment options available. A couple with nearly $500,000 in debt can present a huge liability if the advice rendered causes damages via negligent misrepresentation of the client's options.
On the other hand, reducing the impact of the student loans and repaying them most efficiently could not only lead to two quality clients, a flood of referrals but could also provide the cash flow needed to start planning for the future while they repay their debt.
Knowing how to navigate and assist with student loan repayment could generate a segment of clients that have high-income potential and a lifetime of financial decisions to help traverse.
Get all of the facts about student loan advising
Deciding if you can take Cynthia and Josh on as clients are the type of decisions that can make or break your practice. It’s essential that if you do take them on, you have the training, education, and tools to provide a comprehensive financial plan the incorporates all their repayment options and their how their options impact and are affected by the other aspects of their financial plan.
The CSLP® program can prepare you for these situations. You'll gain the knowledge to help clients and build long-term relationships with the clients you want.