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Fixing the problems of financial do-it-yourselfers

July 1, 2015

New Jersey financial adviser Michael Kay wrote in yesterday’s Wall Street Journal “Do-it-yourselfers often approach advisers as a last resort when they have an especially complex or urgent financial issue, and advisers should proceed carefully with this type of client.” Since the launch of my own practice six months ago, I notice that a high percentage of my clients fall into this category of do-it-yourselfers who ran into trouble. The two most common types of trouble I’ve run into so far are tax penalties and suspected fraud. Dealing with relationships in a family business, handling problems with other advisers, and stalled divorce negotiations would probably round out the top five types of do-it-yourself problems. I find that, in fact, I like working with do-it-yourselfers who run into problems.

Problems handling financial issues are no reflection on the skills or ethics of the individual. The financial world today is unfathomably complex. Our tax laws are a mess and the procedures used by enforcement agencies are out-of-control. I say to my clients that I can;t fix the system but I can deal with the problem logically, one step at a time, and help relieve the enormous emotional stress that accompanies these issues.

Caution

Mr. Kay suggests caution in working with these cases and I agree. I add an extra disclaimer to my engagement letter to adjust for the added risk of these cases. The fact is that when a problem exists there is an inherent risk that your efforts to help will only make matters worse or may lead to a second previously unrecognized problem. These engagements need to be on a best efforts basis with relaxed accountability for the problems.

Reward

Do-it-yourselfers understand and appreciate the difficulties of managing finances. They tend to recognize the difference between amateur and professional service. They also notice the difference between the service I provide (confirming items in writing, doing what I promised, returning calls, being available). I find that they frequently express their appreciation about the improved level of service and that this helps our working relationship. (I’ve not found that these satisfied clients are any more likely to refer me to others, perhaps because they are sensitive of exposing their problem situation to others).

Pricing

The main problem I have with  do-it-yourselfers is that I need to learn to price services appropriately. Undoing a problem typically takes 3 or 4 times longer than starting a project from scratch. You need to gain an understanding of the problem, research the consequences (often requiring outside expert advice and legal help), convincing other parties that it wasn’t your fault and they should let me “start clean” and then finally . WHere there are penalties or consequences from the prior work, that requires even more time. It is not unreasonable to price “fix-up” services at five times higher that the service would have cost if I started the project myself.

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