Tom Balcom, Founder of 1650 Wealth Management, and the Toughest Question He’s Heard

Physicist Richard Feynman once said, “The first principle is that you must not fool yourself – and you are the easiest person to fool.” More than most, advisors understand the truth at the heart of that claim. Even in their dealings with sophisticated clients, there’s often a wide gulf between perception and reality.

We tend to view our own finances with rose-colored glasses. Nearly two in three Americans ages 45 to 65 feel they’ll have enough money to hold them through their golden years, according to a USA Today poll. The reality? The median working-age couple had saved only $5,000 toward their retirement, as reflected in a 2013 study by the Economic Policy Institute. Only a third of working Americans are contributing to their 401(k) plan, and older Americans are entering retirement with more debt than ever before. Even high earners can have difficulty projecting how much they need to maintain the lifestyle they want in retirement.

It’s the job of a financial advisor to address these perception problems. But that job isn’t easy. So how do you break bad news?

We’re asking some of the best and brightest financial advisors to share the toughest questions they hear from clients. This month we talked to Tom Balcom, founder of 1650 Wealth Management, a financial advisory firm in Fort Lauderdale, Florida.

 

Here’s his answer to the toughest question he’s ever heard, and why he recommends brutal honesty:

“I recently met with a potential client who sold his company for millions of dollars. Millions. We’re talking eight figures here.

“He was looking forward to living the rest of his life in leisure. I was looking forward to helping him plan for that. We sat down, started going over his financials. Almost immediately, what I saw shocked me. He couldn’t retire. He couldn’t afford it. At least not in the way he thought he’d be able to. His lifestyle was such that even with all his money, he was spending so aggressively that there was no way it would last. And this was a smart guy, with a successful business and an MBA.

“This happens every day to people of all incomes. I’ve had clients with more modest nest eggs and I’ve had to tell them they will have to find somewhere cheaper to live if they want to retire. And there have been others where I’ve just had to say, ‘Look, you’re not going to be ready when you think you are. You need to work a few more years.’

“Being the bearer of bad news is no fun. No one likes it. These are usually sophisticated people who have worked hard and looked forward to this day all their lives. Clients are often caught off guard, and plunge from euphoria to fear. And there is always the risk that it can scare clients away. When clients become accustomed to a certain lifestyle, and suddenly they are told they can’t afford it, that news can be a very bitter pill to swallow.

“We aren’t that far from the age of pensions. Planning your own retirement has only gotten more complicated since then. It’s hard for people to plan, let alone understand the time horizons they have to work with, or really realize how much income they will need. Usually they just see a pile of money that they have worked and scratched for all their lives, and they think it will be OK. Retirement planning is complicated. People tend to spend more money than they think and think they need less money than they do. You have to get rid of the illusions so they can find solutions. I’m still shocked every day at how many sophisticated people don’t have life insurance. Or who aren’t factoring in the help they are providing to their adult children.

“But tough love is a big part of what we do. I ask myself, ‘If I were in their shoes, what would I want?’ And the answer is always the same: brutal honesty. If I have a problem, I want to know I have a problem. It’s not easy, but more often than not, clients grow to appreciate the tough love. Having money isn’t worth much if it isn’t working for you. Asking tough questions about what they are trying to accomplish goes a long way in building trust so you can start working to solve the problem.

“But if you’re afraid to be brutally honest from the outset, how can you have these other tough conversations? Sugarcoating gets no one anywhere.”