By Daniel Yerger
While financial advisors and planners often love to debate and discuss how they get paid, it’s not so often that you hear the same people spend much time on how their clients get paid.
For all the emphasis and excitement over helping clients efficiently accumulate assets and accomplish their goals, it’s quite often that how the client makes a living goes into the financial plan as a “snuck premise,” a sort of status quo fact that simply underlines the cash flow projections of the financial plan.
However, one of the most beneficial and material things a financial planner can do is help their clients bring more money in the door without asking them to commit more time and energy to their work than they already do. This week, we’re talking about increasing your client’s income.
Right out of the gate, when working with a new client, a financial planner should look to benchmark their client’s income. Resources such as the bureau of labor statistics and salary.com can provide immediate and accessible data based on thousands of datapoints for mean and median wages, along with providing estimates and adjustments for experience and education within the occupation your clients work in.
Further, those who work for large organizations and businesses are very likely to work for companies with glassdoor.com profiles, which provide insights into wages and compensation data, sometimes across dozens, hundreds, or even thousands of peers. Once you’ve gotten a handle on where your client’s income is relative to peers, it’s time to have a conversation: Are you being paid fairly for the work you do?
Before Declaring Fault
For those clients who are being underpaid in their role relative to their peers of similar location and experience, a sensitive conversation has to take place. It’s not appropriate to simply say, “You’re being underpaid.” Rather, this is an opportunity to deepen the relationship you have with your client by learning more about their career and money story.
“How long have you been with this company? Do you remember what your starting offer was? What made you want to work there?” Getting more context about your client’s journey is helpful in framing the advice you’re going to give around their compensation. People work for organizations for any number of reasons.
If you learn that your client works at a cancer foundation because they lost a parent or close friend to cancer, telling them that they’re “Being taken advantage of” is probably not the right tone to take, and raises the risk of alienating you from them because part of how they’re paid by their firm is in the meaningfulness of the work to them. Consider this as you advise them on next steps.
Asking For The Raise
For those clients whose career and work opportunities are more impersonal than personal, it’s time to help your client get mercenary. A simple point of coaching to point out to anyone in the working economy is that there is nothing to lose by being open with their peers about compensation.
They will always learn one of three things by having the conversation: They make more than their peers (cool), they make less than their peers (boo), or they make the same amount (fair enough.) Everyone gains something from that conversation. Assuming that your employee is undercompensated either by industry or within the company, it’s time for them to bring the facts to their employer.
“People with my level of experience in our industry are making an average of $X. I would like to discuss what development plan we can undertake for me to reach that level of income.” If the employer is unwilling or unable to engage in the exercise, that’s a big red flag that it’s time for your client to start looking at taking their talents elsewhere.
Getting A Fair Annual Raise
Another consideration for those looking at raises and wages is to consider how their annual compensation increases are handled. Many organizations and companies create a budgetary pool for raises that are then divvied out based on merit or other metrics.
Regardless of the company’s system for raises, your client accepts only one formula for raises: “CPI or better.” This means that if the last twelve months of consumer price index changes have been 5%, your client does not accept less than 5%. If it’s been 7%, they don’t accept less than seven.
Many companies and managers will cite factors that are irrelevant to your client in consideration of whether they should receive a better raise or not. “The budget for raises is only so big.” “It’s been a tough year.” “Your performance wasn’t in group A, only group A got raises that big.”
All of these are excuses, and none of them justify your client earning less this year than they did a year ago in terms of real purchasing power.
Getting Fair Pay Up Front
Finally, whether you’re coaching a client (or looking yourself) for a first job or new job, it’s important to remember the psychological principal of anchoring. Anchoring biases us to use the first piece of information in a negotiation and to base all discussions and considerations around that piece of information going forward.
If a position posts a salary range of $60,000-$80,000, coach your client to ask for $80,000. It doesn’t matter if they have a lot of experience or a little experience, always ask for the top of the range. If there isn’t a range, ask for more than the market average for the position. Why? Because asking for the top of the range frames all employer counter-offers in the light of offering less.
Example: “We can’t offer you $80,000 based on your skills, we really could only offer you $75,000.” “Okay, so what can we do to make up that $5,000 reduction in what I’m asking for? Are holidays and vacation days fixed? Do you offer flex time or flexible working hours? How’s the variable compensation structured?”
However your client wants to take it, they’re now in a position to demand more. If the client starts at the bottom, then every ask made is an ask for “something extra.”
Be Your Client’s Biggest Advocate
All of this coaching and encouragement to say, help your client make what they’re worth. Too many people settle for less than they’re worth. We see it every day, and we’re in a powerful position as financial planners to help our clients demand what is fairly theirs.
Help them do the homework, help them identify opportunities, help them grow their careers, and you’ve more than earned your fee before you ever even discuss something like a Roth IRA or a 529 college savings plan.
Daniel M. Yerger, MBA, CFP®, ChFC, AIF, CDFA, is the owner of MY Wealth Planners®, a fee-only financial planning firm in Longmont, CO, and a Ph.D. student in Personal Financial Planning at Kansas State University.
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