When it comes to wealth management, your client's money can do two things: It can earn interest or buy stuff. The problem is that many clients have "lazy money" just sitting around waiting to be spent. Money gets "lazy" when it is not being used to do one of the two things it can do with respect to wealth management.
Client's Money Could Earn Interest
Your client's money may be lent to a financial institution and in return they receive an interest rate. Insurance companies issuing interest-bearing products like fixed annuities and fixed life insurance are similar. They receive premium payments from the purchaser of their products. The insurer then lends that money to institutions like large corporations, and the US government. For example, the insurer may purchase long-term debt such as corporate bonds and government treasuries. The insurer receives a yield on these investments. The insurer then keep a spread/portion of the yield earned to cover their expenses and profit first. Finally, they pay the policyholder an interest rate out of the remaining yield.
Or Their Money Could Buy Stuff
Clients could use money to purchase tangible and intangible property. For example they might use money to purchase food, clothing, shelter, automobiles, cell phones, fuel, etc. They may also use it to purchase services such as healthcare, lawn care, or any other service in which you trade your money for someone else’s expertise and time.
Clients may also purchase investments. They can purchase stocks, bonds, mutual funds, and so on. When clients own an investment, they bought something with their money. Before that money can be deployed somewhere else to purchase goods and services, the investment must be sold. Hopefully for your clients, someone is willing to pay them more for it than when they bought it. Make sure your clients recognize that this is not a guarantee, and sometimes they may be forced to sell investments for less than they paid for them.
Ask About Lazy Money
With regard to retirement assets, ask your clients this question: “What is your money doing right now?” Is their money earning interest? Was it used to buy something? If it's not earning interest and was not used to buy something then your clients might have lazy money. It's like an able bodied person who won’t get up off the couch, and be productive. We’d call that person lazy. If I did not get up every morning and go to work, my wife would call me lazy. She might call me some other choice words as well, and she’d be right!
Why Do Clients Have Lazy Money?
Most clients that have lazy money put up with it because they want to keep it safe and they want to have access to it. They want to keep it safe from investment loss. As a result, they won’t buy investments like stocks, bonds, or mutual funds with their lazy money because the value of those investments can rise and fall. On the other hand, they want to have access to their lazy money. Therefore, they won’t “tie it up” in long-term interest bearing vehicles like bank certificates of deposit or fixed interest rate insurance policies like fixed annuities.
Even though they may not like it, some are content with their money sitting in a no interest, or low interest bearing account. A savings account at a bank or a cash equivalent in a brokerage account are two common places for lazy money.
One of the primary reasons people are willing to put up with lazy money is that they do not know if an alternative exists. They may be completely unaware of options, like indexed universal life, that provide protection from investment risk, credit a competitive rate of interest, and permit access to the money if it is needed. If they knew there was a way to put their lowest performing assets to work while permitting access to their money if-and-when they needed it, perhaps they would not be so tolerant of their lazy money anymore. Make sure that your clients are aware of the different ways that they can put their money to work.
A thorough and consistent planning process can help you make sure that your clients don't have lazy money. Learn the strategies and processes to grow your business in our Consistent Advisor program.