What to Ask Clients to Start Their Financial Plan

Clients are often concerned with the past, like filing the previous year’s tax returns, rather than the future. Accountants can be hugely beneficial to these clients by providing forward-thinking services. This means financial planning.

There are many reasons why clients often think they don’t need financial planning services. They may think the good times will last forever, that retirement is too far off or that they should focus on immediate concerns rather than future events like graduate school or weddings. Even if your client doesn’t think they need financial planning, you can take a proactive approach that shows you are invested in your client’s future success. 

Showing your client that financial planning is critically important starts with asking them the following questions:

How confident are you that you will have a comfortable retirement? 

You might also ask them how long they plan to work or whether financial independence is a goal.

Why: The bottom line is that most people are unprepared for retirement. According to Synchrony Bank, the average retirement savings for an American aged 50-54 is $146,068. The 80-percent rule is often used to determine retirement income based on a person’s current income, while four to five percent is often considered a prudent level to tap retirement assets.  

How: You can use Monte Carlo simulation programs to look at your client’s current retirement assets plus expected future savings and growth and compare it to expected spending, adjusted for inflation over time. This will give you a good picture of how long your client’s money will last. 

What is your plan for eliminating credit card debt? 

Many Americans carry revolving charge card debt. According to creditcards.com, the average credit card interest rate is 16.2 percent. Now compare that to what your client is earning in money funds, which is nearly nothing.

Why: According to valuepenguin.com, the average credit card debt for Americans aged 45-54 is $ 7,670, and 51.7 percent of people in that age bracket carry revolving charge card debt. Personal interest is not tax deductible. Many people make minimum payments while running up their balances. If the Fed raises interest rates, these rates will rise, too.

How: Begin by determining the size of the problem for your client. How many cards do they have? What rates are they paying? Look at their monthly statements showing how they could pay the balance down quickly using the examples provided. Can they do balance transfers to other cards with lower introductory rates? Help them develop a debt reduction plan.

What is it going to cost to prepare your child for a career? 

Most people don’t consider the overall cost of raising a child to college age. Some assume college tuition for their child will cost the same as what they paid for their own education, but they may not consider whether their child’s career will require an advanced degree.

Why: According to the USDA’s most recent figures, the average cost to raise a child through age 17 is $233,610. US News & World Report indicates the average cost of tuition for in-state students at a public school is $10,338, while out-of-state students pay an average of $22,698. Private college tuition averages $38,185.  

How: Because college costs will continue to rise, your client needs a savings strategy that is tax advantaged. They should also develop a thorough understanding of how financial aid packages work.

What would happen if you suddenly encountered a career setback? 

While this question can be difficult to ask, it’s important to consider. What would happen if your client lost their job because of company downsizing? Even if their spouse is employed, they might need two incomes to make ends meet.

Why: Millions of Americans were laid off during the pandemic, and companies folded. Many companies are seeking to rehire, but often for low-wage positions. Perhaps your client has realized their “permanent job” might not be so permanent. 

How: Your client needs a reserve fund, which is typically comprised of six months of income. Since this might be difficult for many clients, they should consider what they have available in credit. Having a home equity line of credit is a good idea. Your client also needs to understand the rules governing loans from retirement accounts. Most importantly, they need to plan in advance and have a strategy for finding a new job.

How would your family be provided for if you were no longer in the picture? 

You may have young clients who are just starting their careers and married lives. Often, they have young children. They might own a house and carry mortgage debt. When we are young, we assume we will live forever. What if we don’t?

Why: CNN reports a young family should carry insurance to cover a minimum of 10 times their annual income, while 20 times is even better. Your client will need a cash reserve to generate a return to replace lost income.

How: Start by discussing the importance of being able to replace income. Think about “what if” strategies, and discuss the pros and cons of term and whole life insurance.

What are your long-term plans for your business?  

If your client owns a business, most of their wealth is probably tied up in the business. Their children may not want to carry on their legacy, so they need an exit strategy.

Why: In 2015, the Vancouver SW Washington Business Journal reported that 90 percent of U.S. businesses are family owned or controlled. Of those, 30 percent are second-generation owned, and 12 percent are owned by a third generation. Your client needs to either prepare the business to transition to the next generation or make plans to sell it.

How: Let your client do the talking. Will their family inherit the business and, if so, how are they preparing for that day? If the business is to be sold, it needs to be put into optimal condition to achieve the best price. Start talking about valuations and how they are calculated.  

On its own, financial planning doesn’t sound like an immediate need. But the deeper and more specific the discussion, the more pressing the need becomes.