As financial advisors, our primary goal is to help our clients achieve their financial objectives while navigating the complexities of managing their wealth. One effective strategy to accomplish this is by adopting a "Total Relationship" approach, which emphasizes understanding and planning for a client's near-term lump sum spending needs, such as purchasing a new car or taking a dream vacation. By proactively addressing these cash flow requirements, advisors can build portfolios that ensure sufficient liquidity is available when needed, ultimately helping clients stay the course and avoid making impulsive decisions that could derail their long-term financial plans.

Understanding the "Total Relationship" Approach

The "Total Relationship" approach is a comprehensive method of financial planning and  investment management. It involves developing a deep understanding of a client's lifestyle, goals, and upcoming major expenses. By gaining insights into these aspects of a client's life, advisors can create tailored financial plans that account for both short-term and long-term objectives¹.

Tyson Ray, a financial advisor featured in Michael Kitces' "Financial Advisor Success" podcast, emphasizes the importance of tracking clients' near-term spending plans, such as vacations. He states, "We actually track clients' vacations. Where are you going this year? And more importantly, if we're having an annual review, we'll ask, like, how was that Christmas vacation? Did you enjoy it again? Are you planning on it next year? Because people fall into a rhythm and a pattern if you actually care to identify it. And all these patterns cost money."¹

Identifying Near-Term Cash Flow Needs

To effectively implement the "Total Relationship" approach, advisors must take the time to understand their clients' upcoming lump sum spending needs. This can be achieved through regular, in-depth conversations that cover various aspects of a client's life, including¹:

1. Family: Discuss upcoming family events, such as weddings, college tuition payments, or supporting elderly parents.
2. Health: Address any anticipated medical expenses or planned procedures.
3. Travel and Leisure: Identify upcoming vacations, holiday plans, or other leisure activities.
4. Home Improvements: Discuss any planned renovations or upgrades to the client's residence.
5. Vehicle Purchases: Determine if the client intends to buy a new car or make any other significant vehicle-related expenses.

By proactively discussing these topics, advisors can better anticipate their clients' near-term cash flow needs and incorporate them into the financial planning process.

Building Portfolios to Accommodate Near-Term Spending

Once a client's near-term spending needs have been identified, advisors can structure their portfolios to ensure sufficient liquidity is available when required. This approach can help prevent clients from having to sell investments at inopportune times, such as during market downturns, to fund their planned expenses¹.

To achieve this, advisors can:

1. Maintain an appropriate cash reserve: Allocate a portion of the client's portfolio to cash or cash equivalents, such as money market funds or high-yield savings accounts, to cover anticipated near-term expenses².
2. Utilize short-term fixed-income investments: Incorporate short-term bonds or bond funds into the client's portfolio to provide stability and liquidity for upcoming cash needs².
3. Implement a bucket strategy: Divide the client's portfolio into different "buckets" based on their time horizon and liquidity requirements. For example, a short-term bucket could hold cash and short-term investments for near-term expenses, while longer-term buckets focus on growth and wealth accumulation³.

By structuring portfolios in this manner, advisors can help clients feel more confident about their ability to fund their desired lifestyle expenses without compromising their long-term financial security.

Regularly Reviewing and Adjusting the Plan

The "Total Relationship" approach requires ongoing communication and regular reviews to ensure the financial plan remains aligned with the client's evolving needs and goals. Advisors should schedule periodic check-ins with their clients to:

1. Review upcoming expenses: Discuss any changes to the client's near-term spending plans and adjust the portfolio's liquidity accordingly.
2. Assess the impact of recent spending: Evaluate how recent lump sum expenses have affected the client's overall financial picture and make any necessary adjustments to the plan.
3. Update goals and objectives: Revisit the client's short-term and long-term goals to ensure the financial plan remains relevant and effective.

By maintaining open lines of communication and regularly reviewing the client's financial situation, advisors can proactively address any potential cash flow issues and help clients stay on track towards achieving their objectives.

The Benefits of a "Total Relationship" Approach

Implementing a "Total Relationship" approach offers several key benefits for both clients and advisors:

1. Enhanced client trust and loyalty: By demonstrating a genuine interest in their clients' lives and proactively addressing their near-term cash flow needs, advisors can build stronger, more trusting relationships with their clients⁴.
2. Improved financial outcomes: By ensuring sufficient liquidity is available for planned expenses, advisors can help clients avoid making impulsive, emotionally-driven decisions that could undermine their long-term financial success⁵.
3. Increased client retention: Clients who feel their advisors truly understand and care about their overall well-being are more likely to remain loyal, even during challenging market conditions⁴.
4. Differentiation from competitors: Adopting a "Total Relationship" approach can help advisors stand out in a crowded marketplace by potentially offering a more comprehensive and personalized level of service⁶.

Conclusion

The "Total Relationship" approach to financial planning represents a powerful tool for advisors seeking to help their clients stay the course and achieve their financial goals. By proactively addressing clients' near-term cash flow needs and building portfolios that ensure sufficient liquidity, advisors can create a more robust and effective financial plan that supports their clients' desired lifestyles while maintaining focus on long-term objectives.
Through regular communication, in-depth discussions, and ongoing plan adjustments, advisors can demonstrate their commitment to their clients' overall well-being, fostering trust, loyalty, and ultimately, better financial outcomes. As the financial advisory landscape continues to evolve, embracing a "Total Relationship" approach can help advisors differentiate themselves and provide the level of service and support their clients deserve.

References

1 Kitces, M. (2024, April 23). Helping Clients Stay The Course With "Total Relationship" Approach. Nerd's Eye View. https://www.kitces.com/blog/tyson-ray-total-relationship-approach-advisor-client-cash-flow/

2 Investopedia. (2024, March 7). Financial Goals | Definition, Types, Key Steps, and Resources. https://www.financestrategists.com/financial-advisor/financial-planning/financial-goals/

3 Kitces, M. (2022, August 22). Adding Value With Client Cash Management (And New FinTech). Nerd's Eye View. https://www.kitces.com/blog/cash-management-rising-interest-rates-inflation-sweep-accounts-fintech-fees-aua/

4 Reichert, D. (2023, December 4). Is Multidisciplinary Team (MDT) the Future of Financial Advising? DeckLinks. https://www.decklinks.com/sales-tips/multidisciplinary-financial-advisory-team/

5 Ray, T. (2021, August 12). Episode 162: How to Select a (Good) Financial Advisor. Rational Reminder. https://rationalreminder.ca/podcast/162

6 Pinkerston, J. (2024, February 1). Where to Find Free Professional Financial Advice | Investing. U.S. News & World Report. https://money.usnews.com/investing/articles/where-to-find-free-professional-financial-advice

Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation.  Information was obtained from sources believed to be reliable but was not verified for accuracy.  It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations. 

Savvy Wealth Inc. is a technology company.  Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”.  All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth.  The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.

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