Psychologist explains how advisors can play crucial role in helping families cultivate financial skills
With Family Day just around the corner, it’s a good time for many financial advisors to reflect on the importance of family in their clients’ lives. After all, money is in many ways just an expression of wealth, and people’s ideas of and attitudes towards wealth are largely shaped by the structures, connections, and interpersonal dramas that play out within the household. And while many planners may focus on envisioning their clients’ transition from accumulation to decumulation, that can easily be influenced by drastic alterations in the life circumstances of their immediate family.
But as important as family-based financial planning is, going beyond one-on-one conversations with their client can be a daunting challenge for advisors. “The more people you add to a system, the more difficult it is to have conversations,” Dr. Moira Somers, a psychologist, professor, and author of Advice that Sticks, told Wealth Professional.
“Even dealing with the complexity of talking to an individual versus talking to a couple can make things harder,” said Dr. Somers, who also does consulting work with financial professionals around the globe.
Advisors operating at the ultra-high-net-worth level, she said, are effectively facing at least two dimensions of complexity. At the technical level, they must consider the different sources of wealth and income their clients have access to, and the optimal way to structure their affairs. But they’re also confronted with relational complexity: the family impact of money is an issue that concerns many high-net-worth clients, which makes it unavoidable for advisors to step into the tangles of family dynamics.
“Advisors are rightly concerned about getting onto territory that they're not really equipped to travel, especially if they have a sense that there are difficulties within the family,” Dr. Somers said. “If there's a child who's going off the rails, or if there's a family member whose excessive financial demands are affecting the client, they often don't quite know how to deal with that.”
Whether it’s out of a desire to remain distantly objective, to not overstep their professional boundaries, or to avoid aggravating an already tense situation, advisors often try to ignore the family issues that can torpedo financial planning outcomes. It’s important for advisors to cultivate a referral network of family business consultants and therapists, allied professionals who are capable of dealing with complex issues such as family rifts or addictions.
But all advisors, Dr. Somers said, can help clients’ families cultivate essential financial skills. On her website, Money, Mind, and Meaning, she has a list of the top 10 financial skills needed for modern families – developing marketable skills, spending wisely, and saving regularly, to name some – that advisors are well-placed to encourage and nudge their clients to develop.
“For example, they can give parents the gift of books that discuss what’s appropriate for kids to learn at various ages,” she said. “Further along the developmental span, they can offer to do workshops or seminars for teens who are interested in learning about investing.”
A strong formative education in investing, she argued, has become more crucial than ever. As the events of the past few weeks illustrate, young people on online forums can be swayed into making risky or ill-advised financial decisions; they may be made to feel somehow less-than or that they’re missing out if they’re not getting into the hottest stocks, even if it’s based on misinformation.
Another crucial best practice for advisors, she suggested, is to ask clients directly about their relationships with family members. When dispensing advice, it’s often worthwhile to gently probe the client for information on who might be upset by a particular financial decision, or who might support them in a given undertaking or commitment. Professional planners may be superior in their knowledge of financial products or markets, but they will never know as much as the client about their own life or the social environment in which they’re acting.
“This is something that doctors and, increasingly, professionals from a variety of other disciplines do,” Dr. Somers said. “Whenever you think about advice, the fundamental question that should be asked is ‘how can I help you persist with this new or hard thing that you're trying to do?’”
Planners could also use questions to help take their planning discussions with clients to the next level. They may get to know the lessons that shaped their client’s money attitudes and mindsets, and discuss how to transmit those lessons to the next generation. Going beyond that, advisors may also extend offers to initiate wider planning conversations.
“Advisors can also be looking at talking to aging clients about whether it would be a good idea for them to meet the adult child who's going to be designated with financial power of attorney,” Dr. Somers said. “On the other hand, they could also offer to meet with adult children to discuss whether their parents will be ok from a financial perspective.”
Based on a preponderance of evidence, families do want to be more involved and hands-on. There are plenty of surveys to show that clients want to introduce their children to the advisor, and the next adult generation does want to be aware of what their parent’s financial advisor is doing and what the long-term plan is. But because clients may not be in the habit of sharing intimate details of their lives, it falls on the advisor to ask questions and make invitations to open the door to those discussions.
“I think we have to think about family as something that doesn't just start and end with having minority aged children in the house,” Dr. Somers said. “It's the developmental lifespan. From birth to death, how can a financial advisor take care of the family concerns that most family members have?”
