We help clients in all different ways every day. A big part of the job is to act as a teacher and therapist. Most of my clients have very healthy marriages and relationships. However, that doesn’t mean they see eye-to-eye on everything.
When a couple disagrees about money, in most cases I try to mediate. I succeed the majority of the time, helping them figure out how to work out their problems. However, the decision to recognize their differences is ultimately up to the couple and I’ve accepted that they sometimes will fail and there is nothing I can do about that.
Early in my career, I tried to mediate for a couple who lied to each other all the time about their money and their son. I tried to get them to focus on basic things like what is coming in and what is going out of their budget. But they always fought and I felt extremely uncomfortable. They never listed to me. I think I could handle them better today, but I no longer would want them as clients because they did not value my advice and were paying me not to take it.
I’ve learned that is necessary to try to get couples to listen to each other and come to an agreement or at least compromise on money matters. This involves encouraging them to:
- Be open and honest.
- Respect each other’s money personalities.
- Take advice from their certified financial planner.
Let’s look now at some client success stories.
Charitable wife, happy life
We had a client couple who received a very large capital gain in one of their portfolios. They had invested their employer stock in an exchange fund and then it matured, they had $2 million dollars with a $1.4 million gain. They were going to owe approximately $329,000 in taxes (This includes the 3.8 surcharge for super high earners on top of the 20% federal capital gains tax).
The wife was very charitably inclined. In order to help with their large estate tax issue, we recommended a charitable remainder trust for them. This gave them an immediate tax deduction and they received a refund check for $400,000 from the IRS after filling their taxes. They removed $2 million of assets in their estate. They receive approximately $140,000 a year in income from the trust and they get to direct which charity will receive proceeds upon their deaths.
The wife has a couple of her favorite charities but the couple is now researching which ones they’d like to leave their charitable dollars to. It has been a fun project for them to do together in retirement. I call this a win-win-win. The only one who loses is the IRS.
‘Yes, you can afford a new bathroom’
Another couple I’ve been working with for decades has a very high net worth of more than $20 million They are a lovely couple with a beautiful marriage. They really don’t have to worry because they are very frugal and spend so much less than they earn.
The husband is more frugal than the wife. On a recent review, she asked, “Can I please have a new bathroom?” She was serious and her husband said, “No, we don’t need it.”
I was the voice of reason. I told them, “You can afford it and if it makes your day-to-day life better, I want you to get it.”
It was a great meeting and at the end I reiterated that they could afford to get the new bathroom. They both thanked me and started working on getting a contractor. They are going to go with a middle-o- the-road renovation, nothing super fancy. But new is new!
Sometimes clients just need an outside person’s perspective on what is going on inside the world of their finances.
Additional Reading: How I Charge Clients
Dream house or portfolio clunker?
Another couple I work with has a very large amount of real estate. I would say they have too much — and their estate planning attorney has said the same. My clients called me to tell me they found their dream home which was going to add to their already 65% real estate allocation. This property would bump that allocation to 75%.
We had a call and discussed all the pros and cons of this decision. I always say, “It is your money, but I am here to talk about the good, the bad and the ugly.”
The pros are the couple would get their dream home on the water — and you can touch and feel real estate. The cons are that it costs money to maintain the property and it does not pay interest and dividends. Nor is it liquid. I also reminded them that too much of their net worth is tied up in real estate and that this dream house would be a personal-use asset and not an investment.
The husband was less familiar with the stock market than the wife. He likes real estate because it is tangible and feels safer to him than stocks and bonds. He hates the fluctuations of the securities markets, but didn’t think about how real estate prices could fluctuate, too.
Using a spreadsheet, I explained to the couple that investing $5 million in the market with a 7% return could make them $350,000 a year. I also showed then that a $5 million home would cost them approximately $350,000 a year. That is PITI (principal, interest, taxes and insurance). It is all a matter of perspective.
The couple decided to buy their dream house. But they also understood my point of view and promised to sell another piece of real estate to lower the percentage of real estate in their asset allocation. I also got them to take out a mortgage rather than pay for the home with their only portfolio assets that were generating income and could offer them capital gains and appreciation.
Our role helping clients and sometimes mediating disagreements among couples comes with the territory. I believe with age and experience you get more adept at it. Behavioral psychology always comes into play. (A big help was the CFP Board’s book “The Psychology of Financial Planning.”) Being able to reach your clients and bridge communication gaps makes you invaluable to them.
Cary Carbonaro, CFP, MBA, is SVP, director of Women & Wealth at ACM Wealth, the wealth planning team of Advisors Capital Management. She was appointed and has served as a CFP Board ambassador since 2014. Cary is the author of “The Money Queen’s Guide: For Women Who Want Build Wealth and Banish Fear.” She has spoken all over the world about financial literacy for women. You can reach her at cary.carbonaro@advisorscenter.com.
