Financial Boundaries for Your Clients

Picture this: You’ve worked with your client to create a comprehensive financial plan, and everything is going well. Unexpectedly, though, something significant changes.

Maybe they win the lottery or receive a large inheritance. Then come the requests for financial assistance from a child or long-lost relative. Or maybe they come to realize that a family member they’ve been supporting for years is simply taking advantage of their generosity.

What should they do? Even more importantly, what should you (as their financial planner) encourage them to do?

How can you support a client’s desire to help people without allowing them to compromise their own financial security? How can you help them navigate those complex expectations and emotions to balance generosity and self-protection?

The answer is to learn how to help clients set strong, logical financial boundaries.

Ideally, it’s best to set these limits before a significant financial event (like a windfall). But you can still help clients create clear boundaries even after an unexpected financial event has happened. Follow these steps to help your clients set financial boundaries to protect their assets and goals without damaging their personal relationships.

Step #1 to Building Financial Boundaries: Identify True Financial Responsibility

It’s common for people to experience strong emotions following a financial windfall. According to Psychology Today, people who suddenly receive a lot of money (like lottery winners or successful members of a family) may experience anxiety, guilt, and even paranoia.

Sudden wealth may also introduce stress into personal relationships, especially if friends or family members ask for money. People who have access to a large amount of wealth — especially if it’s unexpected — might feel obligated to agree to every request for financial assistance.

How can you help your clients sort through those emotions and feelings of obligation? The first step is to help them identify their true financial responsibilities. Work with your clients to create a list of people they feel are financial dependants, such as children, elderly parents, or family members with special needs.

After your client has created a list, walk through it with them. Discuss every name on the list to help your client understand whether they truly have a responsibility to that person or whether they’re simply experiencing guilt or pressure because of their sudden fortune.

Once you and your client have clarified their financial responsibilities, you have a foundation for clear boundaries.

Step #2 to Building Financial Boundaries: Start ASAP

Now that your client has a list of people they’d like to financially support, it’s time to clarify what that looks like. Encourage your clients to consider likely scenarios and decide how they’ll respond ahead of time.

For example, let’s say your client has an adult child who is unemployed. A reasonable boundary could be that they will continue supporting their child as long as they are actively pursuing education or career opportunities.

If you can help your client set a boundary like this ahead of time, it’s ideal. But it’s never too late to set a boundary!

The most important thing is to help your client set clear boundaries based on their values. That way, it’s easier for them to refuse requests that don’t align with their priorities or goals.

Planning ahead can be especially important in cases of sudden wealth, like a lottery winning. But it’s a good idea for everyone, regardless of their current financial circumstances. Setting boundaries early means they’re prepared for whatever their financial future holds.

Step #3 to Building Financial Boundaries: Communicate Expectations

You’ve helped your clients set their boundaries. Now they need to communicate those details to the people they’ve decided to financially support. In the example above, it’s crucial for the parent to clearly communicate the conditions of their financial support to their unemployed child.

These conversations can be uncomfortable, and your clients might want to avoid them. That’s normal — according to a Bankrate survey, only 38% of American adults say they’re comfortable discussing bank balances with family members.

But having those conversations is vital! Giving or lending money without clarifying expectations sets the stage for emotional challenges and misunderstandings.

That same survey shows that 55% of people who have lent money (expecting to be repaid) have had a negative result, such as harm to their financial stability and/or their relationship with the recipient.

As a financial planner, one of the best things you can do for your clients is to help them prepare for and initiate those challenging conversations.

Step #4 to Building Financial Boundaries: Document Everything

You’ve helped your client create boundaries and communicate them to the people they’ve decided to financially support. The next step is to officially document those discussions and expectations.

This is another situation that may make your clients feel uncomfortable. They might feel like creating formal documents shows that they don’t trust their family members or friends But documentation is crucial! It ensures that everyone understands all the terms of the arrangement, which can actually help avoid awkward conversations in the future.

Even if your clients are giving money without any expectation of repayment, it’s a good idea to put it in writing. Having a formal document can be useful for filing taxes, and it helps reduce misunderstandings that can lead to conflict.

Step #5 to Building Financial Boundaries: Discuss Emotional Boundaries

Remember, being a financial planner isn’t just about sharing technical knowledge of investments or running calculations to help your clients make a retirement plan. Often, it’s even more important to serve as a financial coach for your clients, helping them understand and navigate the emotional aspects of money management.

As you’re helping your clients create their boundaries and communicate them to family and friends, don’t forget to discuss the emotional aspects of the situation. Remind your clients that they might experience positive and negative emotions throughout the whole process — and that’s OK!

Money is an emotional topic for most people, especially when it intersects with family dynamics or close friendships. You can help your clients prepare for those emotional challenges and decide ahead of time how they’ll react.

As a financial planner, you can provide your clients with an objective opinion that’s not influenced by emotions. Doing so can help them stick to their boundaries even when emotional complications arise.

Step #6 to Building Financial Boundaries: Set Limits Based on Financial Goals

Finally, take the time to help your clients set logical, realistic limits for their financial support. Even if your client has gained significant wealth through inheritance or lottery winning, those funds are still finite.

It’s crucial to help your client determine how much they can give without compromising their own financial security. In some cases, that might even mean disagreeing with them on how much of their money they can safely loan or give away.

For example, if your client wants to give money to a family member to help with an ongoing financial challenge, run the numbers to show your client how much they can give without impacting their own retirement savings.

It might be important to bring in a CPA as well. Large financial gifts can impact taxes for the giver and the recipient, and a CPA can help your client understand them.

Remind your clients of the goals they set for themselves based on their financial values. Tactfully help them understand how those goals could be affected if they give more financial support than they initially agreed upon.

Empower Your Clients to Protect Their Financial Future

Setting financial boundaries is important for every client, but it can be especially crucial for clients who receive an unexpected financial windfall. Clients who get a large inheritance, earn a big promotion, or win the lottery may experience complicated emotions and have many people in their lives ask them for money.

You can help your clients respond to these requests by encouraging them to set clear financial boundaries based on their assets, goals, and priorities. Help them communicate these boundaries and make sure any loans or gifts are documented properly.

Helping your clients set financial boundaries can require some tough conversations, especially if emotions are high. If you want to see first-hand how to lead productive discussions, join Amplified Planning CORE.

You’ll get access to videos of real client meetings, plus expert breakdowns of those discussions and hands-on assignments to hone your own financial planning skills. Plus, you can earn experience credits toward your CFP® certification of continuing education credits if you’re already certified. Join CORE today!