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Investment policy should be a family affair

by Mar 4, 2020UpClose

Investment policy should be a family affair

by Mar 4, 2020UpClose

One spouse says “potato” and the other says “potahto”—even when it comes to their investments. How can advisors work with couples to help them effectively reach their financial goals together?

It’s been said that the number one thing couples fight over is money.

But it doesn’t have to be that way, particularly if the pair has a financial advisor who can help them come to a consensus on how to invest and spend their money—or at least recommend separate accounts if their risk-tolerance levels are just too far apart.

However financial plans are ultimately devised, advisors have a variety of approaches to help couples meet their financial goals in ways that help both partners feel comfortable.

Financial disharmony can strain relationships

While couples don’t necessarily have to be on the same page when it comes to all financial matters, they at least should be on the same planet, especially when it comes to balancing saving and spending habits.

Just ask Chris and Marlow Felton, who share how their divergent habits almost wrecked their marriage in their book, “Couples Money: What Every Couple Should Know About Money and Relationships.” While the two have been financial advisors for years, that didn’t stop Chris from spending so much that it created financial challenges for the couple.

“When I married Chris, I was unaware of his financial situation. He had a ton of debt and it was impeding our financial plans, including buying a house,” Marlow says. “When I found out, I was really unhappy.”

The reason Chris had these challenges, he says, is that he didn’t have “a good relationship with money.”

“I was brought up with a view that being wealthy is not a good thing, so I kept spending it away,” he says. “This included spending $10, $15, or $20 a day on stupid things that I didn’t really need. I didn’t understand the impact of that. It was like dying by a hundred cuts.”

The couple then sought help with a coach who worked with Chris on changing his unconscious beliefs around money, which enabled him to get out of debt and start working on the goals that the two had set together.

“Advisors have to be careful that they are recommending the right kind of coach to help couples who are in these situations, Marlow says. “For us, we found a coach who was financially independent—whose passive income was more than his monthly expenses—so we knew he had the right tools to sustain his lifestyle.”

Separate beds may help some couples sleep more soundly

Joseph W. Petry Sr., an investment advisor representative at CPR Investments Inc. in Latham, New York, says that in his early conversations with couples who are new clients, he uses financial-planning software to augment a discussion about downside risk. “How much can they tolerate losing? Hopefully, they’ll come up with a happy medium,” says Petry.

That’s also when he typically introduces the concept of tactical money management, which he defines, in part, as “trying to be invested when the underlying economy is doing well and then becoming more defensive through a change in portfolio allocations when the economy begins showing signs of entering a recession.”

“I think couples agree more when they’re educated about this, but if one still wants to be much more aggressive than the other, that’s when I’ll strongly recommend that they open two separate investment accounts,” he says.

If the couple have separate checking accounts when they first meet Petry, the conversation about getting individual investment accounts “is very easy,” he says. That way, the accounts can be tailored to their individual risk-tolerance levels.

“The challenge is when they have a joint investment account, and one spouse is much more aggressive than the other spouse,” he says. It can also be challenging when partners disagree about how to spend the money they’ve invested.

Fortunately, many times when couples take money out of a joint investment account, typically they’ve agreed on a financial goal that they’ve discussed with Petry in client meetings. “However, if one spouse asks to take money out, I’ll tell them that I’ve just got to check with the other spouse first. I have to put on my compliance hat, too,” he says. “It’s always the case that one spouse is the spender and one is the saver, and it causes problems if not managed properly.”

To aid in this endeavor, Petry also uses software that helps couples set financial goals, including listing their income and expenses and determining when they need to curtail their spending to stay on track with their financial goals. “But when one spouse still blows through money, that can be a hard conversation to have,” he says. “Another issue that can arise is when one spouse wants to retire, but the other spouse wants them to keep working. That’s never a fun conversation.”

“Being a financial advisor involves a lot of psychology,” he says. “When couples argue about money, we often become mediators. In those situations, I’ll either help them agree on a compromise approach or open separate accounts for each person where each can invest the way they want to or for the individual goals that each has.”


First, define your goals: In some cases, you may have the same goals, but put a different priority on each one or have two different time frames for a specific goal. Coming to a general agreement on what your priorities are and roughly when you hope to achieve each one can greatly simplify the process of deciding how to invest.

Make sure the game plan is clear: Making sure both spouses know how and (equally important) why their money is invested in a certain way can help minimize marital blowback if investment choices don’t work out as anticipated.

Investing doesn’t have to be either-or: A diversified portfolio should have a place for both conservative and more aggressive investments. Though diversification and asset allocation can’t guarantee a profit or ensure against a loss, they are ways to manage the type and level of risk you face.

It takes two: Aside from attempting to minimize marital strife, there’s another good reason to make sure both spouses understand how their money is invested and why. If only one person makes all the decisions—even if that person is the more experienced investor—what if something were to happen to that individual? The other spouse might have to make decisions at a very vulnerable time—decisions that could have long-term consequences.

Source: James Walsh, JD. See the full article at Broadridge Advisor Solutions.

Options, options, options

Janice Hammond, founder and CEO of Sunrise Financial Services in Burien, Washington, typically presents three plan options to couples who are new clients, considering both securities and insurance products, as Hammond is licensed to offer both.

She shows them what their likely scenarios would be if they opt for a high-risk plan only, or a plan that includes a combination of actively and passively managed strategies, or a lower-risk plan that would likely have some form of guaranteed-income product such as an annuity.

“This way, they can clearly see which path would be the better path for their comfort level,” Hammond says. “I find that disarming them—not just trying to sell them something—but talking about how to accomplish goals with a strategy they’re most comfortable with really helps them make a decision.”

Sometimes when looking at the plan options, one spouse will say they have a much lower risk tolerance than the other spouse. Then Hammond will suggest that the couple put some assets into an account that’s geared toward principal preservation and guaranteed income, and then put other assets into a more aggressive account.

“I do think it’s important that both spouses are ultimately on the same page, so we’ll keep rearranging assets until we get to a place where both are comfortable,” she says.

Hammond believes that when she shows couples lower-volatility options that are producing roughly the same results, the partner with the higher risk tolerance can more readily accept the lower-volatility option.

“We might also talk about how changing plans can impact their financial goals, like whether or not they should take a trip to Italy that year, or if they have to wait because the market is down,” she says. “Most people decide they don’t want to live a life dictated by the market.”

When it comes to spending, Hammond recommends using a credit card for all purchases, so couples can more easily examine the charges and how much each person is spending every month.

“When people use debit cards and the money goes out of their checking account right away, it’s easy to forget about expenditures,” she says. “But when you have to pay a credit card once a month, it’s much easier to track your spending.” If one spouse is spending too much, the couple can sit down with the credit card statement and discuss whether both feel good about all those purchases—and how to make adjustments moving forward.

Hammond also sees potential conflicts when she takes on clients who are going through divorces and want a different advisor than the one who has been working with the couple. “I watch divorce attorneys who don’t understand how to value investments when they divvy out assets to each person,” she says. “For example, the net value after taxes may be different depending on how the investment is taxed. So even though the current value may look the same, it could actually be unfair to one party.”

Overall, when it comes to working with couples, just validating both sides is the best thing Hammond can do. “Trying to turn each issue into an equation. That takes emotions off the table because you’re validating both sides and just trying to come up with the best answer,” she says.

Resolving disputes within ‘vault loads of money’

Judson H. Gee, managing partner of JHG Financial Advisors in Charlotte, North Carolina, says that investment disputes between spouses often depend on their savings goals, which Gee segments into what he calls “vault loads of money,” similar to the U.S. Treasury Department’s terms for money supply—M1, M2, and M3.

The M1 vault consists of short-term deposits, and Gee advises that couples place that money into an FDIC-insured high-rate savings account at their primary bank, credit union, or online bank.

“Their M1 vault is not really an emergency fund as much as it is for their monthly fixed living expenses like a mortgage, insurance, food, and gas,” he says. “I advise they keep about three to six months in cash or money market accounts in case something happens like getting laid off or illness.”

The M2 vault should be structured to meet two- to five-year objectives, such as fixing an HVAC system that breaks down, purchasing a new car, or other big-ticket items, Gee says. Because such expenditures typically don’t happen yearly, he suggests considering options such as income-producing vehicles like municipal bonds, senior floating rate funds, or even preferred stocks or REITs. These types of securities generally don’t have as much risk or volatility as equities—and they are also liquid, he says.

“This is where some disagreements may come in and, therefore, I suggest opening two individual accounts and allow them to decide how each account should be invested,” Gee says. “We might use some tactical management in the account of the spouse who is less risk averse, thus allowing them to see what happens when markets get volatile—but also how they perform in up markets, which by far generally last for longer periods of times.”

The M3 vault would mostly encompass objectives with five-year or longer time horizons, so they are most likely retirement accounts—but not always, he says. “If the goal of buying a second home is out there, then perhaps we go the route of using an M2 account but increasing the level of risk in a portion earmarked for that goal,” Gee says. “For example, perhaps 75 percent of the assets are in less volatile investments like municipal or corporate bonds and preferred stocks. Perhaps future investments may go into a strategy that is tactical in nature, allowing both spouses to see the potential gains in up markets—but then can watch to see how the strategy reacts when markets get volatile.”

Making each partner feel heard

Miranda Bonde, a financial advisor at OneWisconsin Financial Group in Green Bay, Wisconsin, says that when she meets with clients, she makes it clear that each person in the relationship is entitled to have differing thoughts on risk and financial goals.

“I engage both sides of the couple and make sure each person feels heard,” Bonde says. “In cases when couples disagree on risk for investment approaches, it becomes very important to find strategies that meet not just one person’s needs but both individuals.”

While she believes that it’s important for couples to have an overall agreement on investment philosophy, in some cases spouses will have to make compromises to investment approaches because of their long-term goals and objectives.

“One benefit to being an investment advisor is the vast amount of investment approaches available to advisors. We are equipped to tailor the investment strategy for each individual and gain consensus on deploying differing strategies between the couple,” Bonde says. “In my experience, if both parties in the couple do not agree on the philosophy or strategy put forward by the advisor, they will not be long-term clients.”

She engages both partners so she can create strategies that both are comfortable with. By gauging each partner’s perspective, Bonde works to accomplish the investment goals for each person.

“That allows them to feel more confident in their plan and where their assets can be productive over the long term,” she says. “I believe if you listen, engage, educate, and speak to both of their needs, you will find consensus faster.”

Bonde believes that active investment management allows advisors to tailor a solution that can meet the needs of each individual client, even if they have different perspectives. Active management provides a tactical solution, such as focusing on market trends, sector rotation, and defensive strategies to mitigate risk, which helps each client focus on what they want their assets to do for them.

Does the educational burden become greater on the advisor when more modern, sophisticated strategies are proposed? She says, “Yes, I think the burden falls on the advisor to understand the strategies so they can communicate the philosophy of the strategy to the client and gain consensus in moving forward with the investment options. The advisor is the conduit between management firms and their client and can break down some of the complexities and educate and explain the strategies to the client in meaningful ways.”

She also says the investment strategy discussion becomes easier when grounded in goals-based financial planning. “Knowing your client, their goals, and their risk tolerance is imperative to finding a solution that can provide them with more confidence in their overall investment strategy—and the performance of those investments.”

The opinions expressed in this article are those of the author and do not necessarily represent the views of Proactive Advisor Magazine. These opinions are presented for educational purposes only.

Katie Kuehner-Hebert is an award-winning journalist with more than three decades of experience writing about the financial-services industry. She has expertise in banking, insurance, financial planning, economic development, and employee benefits, and her work has appeared in many leading publications.


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