Engaging Families in Financial Planning

Advisors Strive to Keep Spouses, Heirs in the Loop

Advisors who prioritize keeping clients’ families involved in the financial planning process find the approach beneficial for both their customers and their practices.

Twenty-seven percent of North American clients ask their financial advisors to educate family members about investing, according to a recent global survey of financial professionals conducted by Natixis Investment Managers. Eight percent had also helped clients address family-related matters, such as mediating conflicts or trust and estate planning. The survey also found that 39% of advisors considered establishing relationships across family generations as one of their most effective prospective activities.

“Estate and wealth transfer planning is extremely important because it’s inevitable for us all to transfer wealth someday,” according to Rashonner K. Lillie, CFP ® , CRPC ® , private wealth advisor and managing director at Reveal Wealth Strategies in Houston. However, those transfers are not always triggered by expected events. Lillie said she helps clients plan ahead for what she terms the “4 D’s”: divorce, disability, death, and disease.

“During the 17 years of my career, at least one of these “D’s” has happened to a client each year – and it’s not age dependent,” Lillie told Advisors Magazine. “Not discussing unexpected life changes doesn’t make them disappear.”

Christopher Mankoff, CFP ® , chief portfolio strategist at JTL Wealth Partners in Southlake, Texas, added, “A situation that happens far too often is when one spouse passes away and the surviving spouse is unable to pay bills, cover medical expenses, or even buy groceries because the deceased spouse always handled the finances. That situation confirms my belief that both spouses or partners should always be involved and educated when it comes to their financial health and future.”

To prevent those scenarios, Mankoff said, he requires both parties to attend at least one of the two semi-annual review meetings he conducts each year. He also lets potential clients know before their first meeting that he cannot take them on as new clients unless they both agree to meet regularly during the initial planning phase.

Four Options for Educating Families

Jennifer R Lee, AWMA ® , AIF ® , founder of Modern-Wealth LLC in Sarasota, agreed that involving family members

in the conversation is a significant consideration for her clients and for her firm. Subjects such as beneficiary designations, inheritance, and legacy provide natural opportunities for advisors and clients to consider whether heirs have the aptitude and the skillset to manage wealth.

“Money can be a burden and it can be squandered,” she said. “When I ask clients if they believe their kids or grandkids are capable and prepared, they often say no. Financial literacy is not widely taught, and many people lack the depth or preparedness necessary to manage, retain, and enjoy the assets. For many clients, they have little to no interest; for others, it means lifelong learning.”

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Lee said advisors have several options for getting heirs and family members up to speed on finances:

1. Conduct a series of family meetings. Financial advisors can provide context and stories of experience while educating the family about saving, values, the time value of money, and how to leverage professionals (attorney, accountant, advisor, banker, mortgage broker, etc.).

2. Introduce family members to your advisor and get them started on the education journey. Topics in this approach include those listed above, plus cash flow planning, discretionary spending, asset allocation, income planning, and business consulting.

3. Meet with an estate planning attorney and plan to control things through trust documents.

4. Let them fend for themselves and whatever happens, happens.

“I vote for options 1, 2 or 3,” Lee continued. “In my practice, we discuss the aptitude of the kids. Sometimes we engage them early and establish an advisory relationship. At other times, we coordinate family meetings. It really depends on the personal desires of the elders. I also encourage everyone to write a family love letter. The love letter connects the dots and can act as a natural and valuable complement to your will and other documents.”

Lillie said that, in every review meeting with her client, she ensures they have a power of attorney (POA) or trusted contact person listed on their accounts, and that beneficiaries are up to date. She also asks for permission to connect with beneficiaries or POAs by email to make them aware of her own relationship with the client. Lillie also advises clients to create a file at their home listing their professional relationships such as financial advisor, attorney, and CPA. In addition, she recommends that clients tell POAs and beneficiaries which institutions hold their assets (without revealing balances) so they will know who to contact if they need money or if the client passes away.

“It is extremely important to have these basic estate documents in force because once a life event occurs, it is either difficult, costly, or impossible to make changes to beneficiaries or decision makers,” Lillie added.

Keeping Heirs Involved Mankoff also said, “Including heirs in conversations is just as important as including spouses. I encourage clients to have a conversation with their heirs or trustees before establishing any type of legacy plan.”

Clients should also ensure their intentions align with the trusted person’s ability, desire, and agreement to perform such tasks as health care power of attorney, financial power of attorney, advance health care directives, designation of guardian of minor children, and administering a trust as the trustee. If the client is not comfortable having the conversation, Mankoff offers to set up and facilitate a meeting with everyone involved to discuss the client’s wishes and educate the heirs on the responsibilities of each task.

Lillie also pointed out it is important that loved ones are involved to ensure they agree with the choices clients are making for them and can accept the responsibility.

“I’ve had clients that didn’t want to be the beneficiary or power of attorney on an account their parent was leaving to them,” she said. “Often one spouse isn’t engaged financially. When the other spouse dies, they have the added burden of learning to manage finances and often make costly mistakes.”

Overall, Lillie added, “Family financial transparency is a gift that protects relationships from turmoil and confusion.”