Advisers counsel clients on holiday spending

‘Tis the season to give, and this year, some financial advisers say they are giving their clients advice about holiday spending.

Although most clients are wealthy enough to spend however much they like during the holidays, some financial professionals urge limits to avoid waste and set positive examples for younger generations.

The best way to persuade people to overcome the emotional spending habits around holiday time “is to appeal to both fear and greed,” said Terry Savage, a registered investment adviser, syndicated columnist and personal-finance author in Chicago.

By the time someone is smart enough to be dealing with an adviser, they recognize that every choice comes with trade-offs and consequences, but they just need a good illustration, she said.

“I tell them that if they invested the $2,000 that they might spend on gifts in an index fund that tracks market averages, in 30 years it would be $45,000,” Ms. Savage said. “If they did the same thing for each of those years, their holiday spending would be worth $450,000.”

Financial advisory clients typically aren’t going to defer buying holiday presents for their families because they are worried about paying for heating bills this winter, Ms. Savage said. The key is to remind them that money invested in a college fund instead of toys for a child or grandchild could be worth so much more for that child’s education or their own retirement, she said.

It is a matter of showing them the big consequences of small decisions made today — and it isn’t just about the money, Ms. Savage said. “These are lessons they should pass on to their children,” she said.

Brooke Stephens, a fee-only financial adviser in New York, said that she encourages grandparents to give small holiday gifts to children and then contribute to college funds such as Section 529 college savings plans.

“It’s hard, but I try to get them to understand that it will be worth five times as much as what they spent on a toy,” she said.

Ms. Stephens said that she focuses on practical advice such as sharing holiday expenses with other family members, but some don’t listen.

Older people are more levelheaded about spending in line with a budget than younger clients who don’t want to take it seriously, she said.

This year, Ms. Stephens is telling clients that the economy isn’t going to be great in the coming year.

William Rutherford, president of Rutherford Investment Management Services LLC in Portland, Ore., said his economic outlook isn’t as negative, and he thinks that holiday spending isn’t likely to be disastrous either.

“People get nervous and say Christmas isn’t going to be good this year, but somehow the consumer finds a way,” Mr. Rutherford said.

This time of year, he directs his clients to consult with their accountants to evaluate year-end tax-planning needs such as harvesting gains and losses.

One nervous client recently insisted on selling his U.S. investments and putting the funds in international securities, said Mr. Rutherford, whose firm manages about $25 million in client assets.

“I counseled him against it, but he insisted,” Mr. Rutherford said. “It cost him a lot in taxes.”

Mike Busch, a financial adviser with Vogel Financial Advisors LLC, a Dallas-based firm with $130 million of assets under management, said that advisers there are focusing on year-end strategies such as looking at the client’s charitable giving.

This year, he has been addressing the alternative minimum tax issue, which is in limbo as Congress decides whether to approve last-minute relief for some investors.