Morningstar Column: How to Be an Effective Pro Bono Advisor

By Phuong Luong

This article was originally published on Morningstar.com on December 16, 2020.

It’s that time of year when many advisors and firms consider providing pro bono services as a way to give back. Despite these good intentions, advisors often make incorrect assumptions about how to help people with low incomes or in financial distress. It takes a great understanding of their goals, backgrounds, and concerns to avoid having one's attempt at pro bono advice do more harm than good.

In fact, it turns out that when doing pro bono work, advisors can lean on the same skills and knowledge they have built for their wealthy clients. But it’s also important to know what you don’t know. Advisors need to avoid biases about what lower-income families need, biases that can end up deterring pro bono clients from continuing to get help or even cause negative financial consequences.

Below are just a few examples of lessons I learned early in my career as a financial planner and as a trainer for financial counselors who collectively worked with hundreds of working-class families in the United States:

• How to gather all of the information necessary to fully assess a person’s student loan burden.

• How to help an anxious person sort through unopened mail from various financial institutions, including hospital bills, past due student loan statements, and eviction notices.

• How to read a credit report with a person who has been receiving debt collection letters for a debt they do not believe they owe.

• Earning more income or having more in savings can actually cause short- or long-term hardship. It may cause the loss of healthcare and disability benefits, housing subsidies, food assistance, and other public benefits--and the rules can change state by state.

But these details are just part of the bigger-picture approach needed for really being of service with pro bono clients.

It’s Not All About Financial Education
Many advisors assume that good financial advising for people experiencing financial insecurity is about teaching poor people how to make better money decisions.

The problem is that this approach assumes that a lack of financial knowledge or discipline is the client’s main problem and implicitly blames people for their financial difficulties. As an advisor, it’s important to remember that clients are the experts of their own lives.

I also know firsthand that there are plenty of wealthy people who get stumped by the complexity of a credit report.

So, at the beginning, it’s often not about educating the people you are trying to help--it’s really about educating yourself. When it comes to our wealthy clients, as advisors, we know that if we ignore the context of our clients’ lives, we can’t provide relevant advice. And it’s no different for those who can’t afford to pay for advice.

Why a Focus on Budgeting Can Be Harmful
With wealthy clients, advisors would never start by questioning their budget. But for people experiencing financial insecurity, that’s generally where advisors begin. Let’s explore why an instinct to start with budgeting for a low-income family can set you off on the wrong foot.

A budget-centered approach to pro bono advising focuses on naming and prioritizing wants (discretionary expenses) versus needs (nondiscretionary expenses). Then you work to decrease spending on the wants.

But let’s say you were working with a pro bono client and see a line item on their checking account statement for fast food.

You might ask the simple, unfortunately too common, question: “Have you considered eating out less?”

Here are potential reasons a client's budget may show relatively large dining out expenses compared with grocery expenses: His stove broke, and his landlord refuses to repair or replace it; she might not have time to cook because she's caring for family and working multiple jobs; eating out is the only uninterrupted time the family can spend with the children; or the car broke down, and he would have to take public transportation involving multiple bus lines to reach the nearest grocery store.

The reality is that clients may not have the flexibility in their lives to alter that budget line.

A budget-centered approach ignores the myriad financial barriers clients might face that pro bono advisors may be able to assist with, such as reversing student loan wage garnishment and steering clients away from predatory financial services.

You may even lose the opportunity to uncover the root of the clients' concerns and why they sought help in the first place. What might seem as a neutral suggestion regarding lowering expenses could also be a deeply personal and offensive one to the client. Pro bono clients face financial stress while shouldering all the negative societal messages that are placed on people who experience financial difficulty--because so often we blame people and question individual actions but not the systems that cause poverty.

Lean on the Skills You’ve Already Honed
So, where do you start? You already know what it takes to be a great advisor. Unfortunately, I’ve seen too often that when working with low-income clients, advisors forget or ignore those foundational skills and instead rely on widespread misconceptions of poverty to guide their pro bono efforts.

With wealthy clients, advisors know to maintain a holistic and birds-eye view of their goals, assets, and other important factors--before zooming in to offer recommendations. Providing high-quality pro bono services means treating pro bono clients like you would treat any other client.

In other words: Listen and learn about their lives, goals, and priorities and gather the necessary information before analyzing and developing recommendations.

Here are some principles and recommendations--that should be familiar to financial advisors--to keep in mind when working with pro bono clients:

• Build trust with clients. Clients won’t open up until they believe you’ll listen without judgment. This is especially important to keep in mind for pro bono clients because people who experience financial stress, temporarily or for the long term, are used to others judging and blaming them for their situation--and may feel guilt and shame as a result. Without establishing and maintaining trust, clients won’t listen to your advice even if it might be useful.

• Reject stereotypes about your clients. Feeling respected is central to their having trust in you. Poverty is not a personal failing. In fact, research has shown that at least 60% of Americans experience poverty at some point in their lives. The common myths that low-income people are bad with money, irresponsible, or unmotivated just aren't true. People with lower incomes or limited savings are much better at managing limited cash flow than wealthier people. They have to be--because there is very little slack in their finances. Don’t assume that the problem is simple lack of knowledge or something else that pro bono financial advising can easily solve.

• Focus on a niche. I’ve generalized in this column by using the term “pro bono clients.” However, just as it can be beneficial for advisors to understand their customer niche, it’s important to determine a pro bono niche. Focusing on a pro bono niche makes it possible to develop the necessary expertise to serve your clients well, because, as advisors, we know that it’s impossible to be the right expert for everyone. There are excellent pro bono programs that specialize in providing services to military families and veterans or for families diagnosed with cancer. If you have an expertise for tax preparation, there’s a pro bono program for that, too.

• Educate yourself. Stereotypes and other biases are rooted in lack of experience and misinformation. Before meeting with pro bono clients, make the time to understand the societal and structural dynamics behind why so many Americans are in financial distress in the first place; otherwise, you might perpetuate the shame that society places on lower-income folks--in addition to quickly losing their engagement. Two books I recommend to gain perspective here are Automating Inequality by Virginia Eubanks and $2 a Day by Kathryn Edin and H. Luke Shaefer. Also, dig into technical topics that are relevant to your chosen pro bono niche, such as how to handle an eviction notice or deal with a debt collector.

• Create space for clients to dream. A byproduct of stress is a hyperfocus on current problems. Unless the pro bono client has an urgent financial emergency, an important role you can play is to create opportunities for the client to think about long-term goals. Training in financial coaching can help advisors ask open, powerful questions and create space for people to reflect on what they really want and to consider new and potential options. Coaching skills can be valuable tools for an advisor working with both low-income and high-net-worth clients.

• Help clients connect to trusted referrals. It’s important for advisors to maintain a referral network of professionals such as accountants, tax preparers, or insurance experts to support our clients when a situation is beyond our expertise. It's even more critical for a lower-income family to have these referrals as they may not have social connections to financial professionals. It’s important for pro bono advisors to develop a network of referral partners and resources such as financial counselors, pro bono or sliding fee-scale attorneys, credit counselors, food pantries, free tax preparation, and direct cash transfers. Another good starting point to find potential resources in your local area is the FindHelp.org database. Curating and maintaining this resource network can take considerable time and effort. Nonprofit service providers are often limited in their geographic reach, and grant funding may restrict whom they can serve.

• Know your limits. It’s crucial that advisors avoid providing advice where they don’t have expertise. If you don’t have the capacity to provide high-quality pro bono services, you can still make a meaningful impact by partnering with organizations that share your mission and moving cash directly to people in need. In addition to your local service providers available on the FindHelp.org database and trusted organizations providing pro bono financial services, organizations to consider financially supporting are The Economic Security Project and Give Directly or individual mutual aid groups listed on Mutual Aid Hub database.

Developing relevant expertise for a specific pro bono client demographic takes time and dedication. Ultimately, being a great pro bono advisor means understanding that the choices people make are limited to the choices people have. Pro bono support done right increases the kinds of choices people have.