Couples may be on the same life path, but this does not mean they agree on what to do with their money. In fact, they often do not — which can pose dilemmas for a wealth adviser.
Frazer Rice, a Wilmington Trust Corp. vice president and private-client adviser, has dealt with many such conflicts of purpose.
One couple Rice worked with — he was an investment banker and she a stay-at-home mom — had a $2 million mortgage, $5 million of assets and children. The husband wanted to invest conservatively, but his wife wanted to pour their money into riskier asset classes.
How did the couple work out their differences?
"Part of it was my explaining to the matriarch some of the rationale around conservatism and why it's important to have enough money set aside to fund the mortgage, the education of the kids and to have a bit of a buffer in case something happened to her husband's job," Rice said. "When the matriarch saw what things actually cost and how long it took to increase cash flow, it broadened her context as to why it makes sense in some cases to be conservative over a certain period of time to take care of those cash needs."
One of the first ways Rice tries to bridge a gap between couples is to make sure both parties are on the same page as to lifestyle and budget. "A lot of times I find that each person has a very different idea of lifestyle and how that fits into cash flow and investments," he said.
Here are some basic questions Rice tries to answer: How much income do you need to maintain your lifestyle on an after-tax basis? How much do you have in terms of assets? How much income can your assets generate? What other sources of cash flow are there?
Sometimes Rice finds it helps to talk to each person separately about how they would like to invest and what their fears and risk tolerances are.
Another way to help couples that are truly at odds about wealth planning is to create three pools of assets: one large pool to cover the family's overall needs and ensure that growth and income objectives are met, then separate pools for each spouse.
John Hoffman, a managing director at Northern Trust Corp., works with clients and families that do not have a family office and have liquid wealth from $25 million up to $500 million. Having clients who do not always see eye to eye or who have competing goals is his daily bread. His goal: to arrange a meeting somewhere in the middle.
"It's a slow building process," Hoffman said in a telephone interview Tuesday. "It rarely ever happens all at once. You take them both out of their comfort zones and slowly get them to the point where, if they look at their portfolio now versus three years ago, it's dramatically different but not so different that they don't recognize it."
Estate planning is another stress point Hoffman sees when advising couples. One spouse may want all the money to go to the children, but the other may hope to benefit a favorite charity.
"There are a lot more emotions tied to moving wealth around for estate planning than [to] investing in various markets around the world," he said. "It takes a lot of education, convincing and soul-searching."
Often, Hoffman said, a dominant partner at the table drives the decision-making. His job is to educate both so that each one can feel an ownership in the process. "It is not as if either the husband or the wife is my client," he explained. "Both are my client. I have to make sure both are getting the outcome they want at the end of the day. No one rules the roost."