When a client planning a move to a Manhattan co-op apartment asked advisor Sara Stanich if she should buy a two-bedroom rather than a one-bedroom — just in case her son needed a place to crash after graduating college — the answer was clear: no. But Stanich took a slow, nuanced route to that answer that spanned several conversations over a few months.
A wobbly job market, especially for recent graduates, had the client worried about her son’s immediate prospects. Still working herself, with her retirement savings relatively on track, she had recently divorced and was planning to sell her former matrimonial home to cover the cost of a new place, but she was torn between a two-bedroom with a burdensome mortgage and a one-bedroom she could buy outright.
Stanich asked pointed questions: “Do you want your son to come live with you? Does your son want to come live with you?” No to both. Then she showed the client that there would be scant tax advantage to the larger place. That clinched it.
“The client went with the one-bedroom,” says Stanich, a New York-based affiliate of Raymond James with about $25 million under management. “It’s important that we had built up trust in the relationship,” she adds, explaining the basis of what she regards as a favorable outcome.
Clients who feel obliged to provide for adult children and elderly parents can overspend. Private university for three students living on campus in a major metropolitan area can easily exceed $500,000. So can just four years for a couple in a deluxe retirement community in Florida. And friends who want loans to fund a business venture that’s been their lifelong dream can also be a significant drain.
Such expenses are more than enough to derail a client’s financial plans. It’s not easy explaining that to clients who feel guilty about financially needy loved ones, but that’s precisely what advisors who are determined to serve their clients’ best interests have to do.
Experts say clients fret over other people’s finances for several reasons. Those who grew up without money can get frantic about their kids’ finances, says Cal Brown of Rockford, Ill.-based Savant Capital Management. Savant’s process for dealing with clients on the verge of spending huge sums on loved ones involves, first, listening for their emotional response, then showing them a quantifiable analysis of how the expenditure would affect their financial goals. In addition, the firm, which manages over $3 billion, is a fan of personality testing — both to understand the client’s motivation in aiding loved ones and for hints on how to advise clients in ways likely to strike chords with them.
Let It Be
Deciding when to let clients follow their hearts and when to intervene is not always simple. The difference between what is doable and what is optimal may be a matter of faith, according to Joe Ellison of Beverly Hills Wealth Management, which manages more than $500 million.
Ellison says some situations call for family money, even if it entails sacrifice, like when a bright teenager gets accepted to a great college and needs tuition assistance, or when an adult child with developmental problems needs on-going support.
Sometimes, though, it’s best if families don’t get involved financially. Consider the 90-year-old who has lived in the same rent-stabilized apartment for decades and enjoys round-the-clock care, thanks solely to Medicare and Social Security. If her family were to assume the financial burden of looking after her, they might feel better on one level, but they would also be draining their resources — to the peril, perhaps, of their long-term well-being.
“Family is the most important thing,” says Ellison. “It’s more important than money.” But that doesn’t mean clients can or should throw money at family problems, he adds, not without carefully weighing the consequences.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Every investor’s situation is unique and you should consult with the appropriate professional about your individual situation. Any opinions presented are not necessarily those of Raymond James. Cal Brown, Joe Ellison, and the companies they represent are not affiliated with or endorsed by Raymond James.
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