A couple’s wealth disparity can foil adviser planning

Ready to discuss the investments in their charitable trusts, a husband and wife — three years into a second marriage for each — sat before Michael C. Walther, a certified financial planner and financial adviser with Balasa Dinverno & Foltz LLC in Itasca, Ill. Palpable tension filled the air. “It’s not fair. His trust has more than mine,” snapped the wife, then in her mid-30s. “Well, yes, but he took more risk than you did,” Mr. Walther said. “But it isn’t fair,” she repeated. Such was the situation 10 years ago when Mr. Walther started working with the couple. The 40-something husband was climbing the corporate ladder at a financial services firm; she was a stay-at-home wife who was unacquainted with wealth and finance. “They are total polar opposites when it comes to what they want in a portfolio,” Mr. Walther said. “She’s very conservative; he’s very aggressive, and ‘This isn’t fair!’ came up a whole lot early on.” Diverse Backgrounds Different levels of risk tolerance are one element advisers consider when working with a married couple, but different socioeconomic backgrounds and varying levels of financial savvy can add to the stress for all involved, said Jim Grubman, a clinical psychologist and wealth consultant in Greenfield, Mass. A couple’s money woes, he observed, can turn a financial planner’s office into a therapist’s couch. “There can be tension, but there doesn’t necessarily have to be,” Mr. Grubman said. For Cheryl M. Burbano, a CFP and senior financial adviser in Wesley Chapel, Fla., with Minneapolis-based Ameriprise Financial Inc., an “extreme” case of mismatching produced enormous tension. “He came from a wealthy family and blew through an inheritance,” she said. “She came from a blue-collar background and wanted to save everything.” The couple was drowning in red ink due to the husband’s spending. “He wanted to appear wealthy, but he had personal loans, a horrible credit record and all of $2,000 saved for retirement,” Ms. Burbano said. The situation was dire enough that the wife cracked that her husband was worth more to her dead than alive, because of his insurance policy. Ms. Burbano constructed a budget for the couple. The wife took a job to bring in more income and adhered to the financial plan, but the husband’s need to spend prevented the couple from getting ahead. “This is a symptom of a relationship that manifests itself financially,” Ms. Burbano said. “They don’t communicate.” The couple’s communication problems soon eroded the financial plan, and now they check in with their adviser only sporadically. Unlike Ms. Burbano’s clients, couples who seek financial help together typically want the collaboration to work, Mr. Grubman said. “It’s almost a red flag if they’re not comfortable with that,” he said. Working together Sometimes the savvier spouse also has the best intentions for the portfolio and would prefer to handle all the adviser-client communications and decisions. But advisers note that this arrangement overlooks the concerns of the partner who needs financial education in order to contribute to the investment decisions. The solution: Encourage both spouses to discuss their financial backgrounds and then educate in order to level the playing field. “Ask clients open-ended questions about their experience with money, the socio-economic class and culture they come from, and how much have they learned about managing their money,” Mr. Grubman suggested. “This way you can see not only who has the money, but who’s skillful with it,” he said. “Stress that anything that one person is doing is not only affected by the other but that it will also impact the other.” In Mr. Walther’s case, his first introduction to the aforementioned couple was when the husband came to his office alone to discuss the family’s investment portfolio. “He held shares in his company’s stock but was also interested in private-equity-type investments and real estate,” Mr. Walther said. The aggressive nature of the investments set off bells for the adviser, who immediately told his client to bring in his wife to let her know what was going on. At the first meeting with the couple, Mr. Walther discovered that the wife lacked investing expertise, so he drew tables that depicted historical returns for certain stock picks and provided diagrams that showed market volatility. The visual methods worked, he said. But that isn’t enough, said Mr. Grubman, who noted that advisers often can heal relationship rifts through their guidance. Take Lisa A.K. Kirchenbauer, a CFP and president of Kirchenbauer Financial Management and Consulting of Arlington, Va. Money was the root of the quarrels between a pair of her clients, who were domestic partners. He inherited money, and she came from modest means. The difference in wealth created conflict between the two, so to create a sense of parity, the male gave his partner a gift of $1 million, no strings attached. “He had been kicking the idea around for a while, so we spoke with his tax adviser and discussed the issue for about nine months before it happened,” Ms. Kirchenbauer said. “Since then, she’s had to come to grips with the money, too.” Annual meetings with the two, jointly and separately, have allowed Ms. Kirchenbauer to discuss the couple’s goals as well as provide individual coaching to the female partner, who has been dealing with the anxieties of sudden wealth and still needs to catch up on financial education. Often, the coaching goes beyond the financial. “Money feels private, and clients are more willing to take it a step further and discuss relationship issues than many planners think,” said Mr. Grubman. “Advisers, especially those who are fee-based, have the focus to work with a couple over time and are more disposed to develop a relationship with them.” Some clients, in fact, want an impartial arbiter to listen to their money anxieties. “Clients often relate to the metaphor that some people are immigrants to money and others are natives,” Mr. Grubman said. “Living with wealth feels foreign, and this is like trying to adapt to a new place with a new language. When an adviser uses that analogy, it connects with the couple and creates a productive dialogue,” Mr. Grubman added. The secondary role of counselor has helped Mr. Walther encourage his second-marriage couple to work in tandem, and now the wife actively participates in the advising discussions and has gone far enough to select the charities in her trust. “It was a bit of a drag at the beginning when she wasn’t as sophisticated, but now she’s comfortable,” he said. “The key thing is to never stop educating and to avoid going into a vacuum with one spouse,” Mr. Grubman added. “Help them understand that it’s OK to want different things. As long as they can communicate, you’re in good shape—and it’s our role as advisers to facilitate that.”