For Susan Hirshman, it was one of those unfortunate intersections where family dynamics and financial planning meet. About six years ago, a recently widowed client asked her son to step in and help handle her portfolio. But, when the son suggested reallocating and diversifying her investments, the woman became very upset. The move meant selling stock in the company her husband had worked for his entire life, and the step took on a symbolic power far greater than either Hirshman or the son had envisioned. Eventually, the client agreed to make the change, but it took a long meeting and a lot of hand-holding.
“From an investment point of view, it was the right thing to do,” says Hirshman, a planning strategist with JPMorgan Fleming Asset Management and a Registered Rep. columnist. “But it was a difficult, emotional time.”
Welcome to the world of role reversal, when adult children take over part or all of their parents' finances — at the request of Mom or Dad. Sometimes, it's because parents realize on their own they need a little help; sometimes it's thanks to gentle prodding from their advisor. But, no matter who initiates the move, it generally means a change, sometimes dramatic, in the parent-child relationship — and one that can require enormous delicacy on the part of an advisor to pull off.
It's a skill that's likely to become more important to any advisor's business. As an increasing amount of money passes from generation to generation over the next 20 years, “helping elderly parents transfer wealth before and after their death will be the biggest issue financial advisors will face, after retirement planning,” says Kevin McKinley, a financial advisor in Eau Claire, Wis., and a columnist for Registered Rep. “It's an exploding area.”
Trigger Events
Generally, an advisor is likely to experience role reversal because of one of two scenarios. Either a middle-aged client reveals his or her parents have asked for financial advice from the kids, and requests that the advisor meet with them all. Or, it's the parents who are the client, and they initiate an intergenerational meeting. The impetus for that request is often triggered by a disturbing event — not necessarily something catastrophic, but, nonetheless, an alarm that all is not well: a usually meticulous client forgets to pay an important bill, for example, or realizes that his estate planning is inadequate. Or, it may be that older clients see friends fall into difficult straits because they let their finances slip. Or, in many cases, it's because the spouse who assumed responsibility for financial decisions has passed away, leaving the partner in desperate need of advice.
Still, no matter what the reason, it's not easy for most parents to give up some control of the purse strings — or even to divulge the ins and outs of their financial decisions to anyone else. “Having control of your finances is one of the last gasps of independence,” says Malcolm Makin, a financial advisor and president of Professional Planning Group in Westerly, R.I. “It's a huge symbol.” And it can be especially hard to involve people who, once upon a time, you potty-trained. “It's very difficult to have children enmeshed in every square inch of your financial situation,” says Tom Henske, a financial advisor with Lenox Advisors in New York. Others worry about imposing on busy children or don't want to alarm them by admitting they might need help. For some, the mere fact of asking for assistance means acknowledging they have lost some of their abilities — something they'd rather not face. “There's a reluctance on the part of many parents to admit they're slowing down,” says Henske.
The crucial issue is the tenor of the parent-child relationship — how close is the relationship and how open the parties are to talking about money. Often, that's been an off-limits topic for as long as the kids have been around. “A lot of people grow up in a household where they just don't talk about how much Mom and Dad earn,” says Henske. “It's another form of ‘don't ask, don't tell.’”
Still the Parent
It's no wonder, then, that many parents take quite a while before they are willing to talk turkey, even if they first broach the subject. Indeed, just because they ask for help, doesn't mean they're ready to open up. Aaron Schindler, a financial advisor with Wealth Advisory Group, an agency affiliated with Guardian Life Insurance in New York, recalls his experiences with his own father when the older man was diagnosed with cancer 10 years ago. It took two to three years for him to fully disclose the details of all 15 of his accounts.
In other cases, people may simply not be willing to change their habits. Makin recalls a client whose mother had about $200,000 in CDs and balked when they suggested she diversify. When push came to shove, she just didn't want to try something new. Worse, parents who aren't used to revealing financial details to their kids can become distrustful of their offsprings' motives. Makin had one client “who was absolutely certain her son was stealing from her,” he says.
At the same time, the kids aren't always thrilled at the change, either. It may be the prospect of watching their parents fade is too painful to accept. Nick Meyers, a financial advisor with Sagemark Consulting, a division of Lincoln Financial Advisors in Cherry Hill, N.J., often sees adult children balk when their parents suggest they meet to discuss estate planning. “They'll say, ‘This is morbid, we don't want to talk about it,’” says Meyers.
Then again, parent and child may simply not get along. Or, longstanding patterns may come out in full force under the pressure. Hirshman recalls a client who met with his mother and her after his father died. “They would fight the whole time,” she says. “She would whine, and he would become impatient.”
Tangled Family Ties
The more kids there are, the more complicated it can be. For one thing, with many siblings, there is a greater chance for rivalries and old grudges to crop up. Henske points to two parents who, two months ago, in the process of discussing their finances, revealed they wanted to leave their small business to one of their three children. “But the others felt they were being cut out of that part of the estate that would be the most lucrative,” he says. A huge fight ensued — and as of yet, it has not been resolved.
In some cases, siblings may have divergent and contradictory interests. Jonathan Gassman, a financial advisor and accountant with Gassman & Golodny in New York, worked with a client whose father was taking care of his bedridden mother at home and asked his son for help. The client wanted to keep his mother at home for as long as possible and pay whatever was necessary to keep her out of a nursing home. The other brother, however, was in more difficult financial straits and had his eye on the inheritance. “He wanted to put her in a nursing home right away,” he says.
Perhaps the easiest part of the sibling issue is the matter of distance. Indeed, just because the kids live far apart doesn't mean they can't all be involved. Fleming's Hirshman has a client who, several years ago, asked their closest child to help with the finances. When the other two found out, they became quite upset. Now, the family and Hirshman conduct an annual conference call to discuss the parents' situation. Henske holds quarterly reviews for a client, a widow with three far-flung sons. Each time, Henske and the mother meet in his office in New York, and the three sons — one in Texas, one in Florida and one in California — also participate via the Web and a conference call.
The best scenario may be when a client takes preemptive action before he or she begins to decline, to get ready for the time when he or she may start losing the ability to function well. Makin, for example, points to a client, a successful, retired executive. Seven years ago, they set up an annual meeting in which the client's son, also his trustee, along with Makin, the client's accountant and another broker, met to review goals and objectives and update wills, trusts and other investments. Afraid that his wife, who isn't as financially savvy, would be lost if he were to die before her, “the client wants his son to be well prepared in case he has to step in,” says Makin.
The Man in the Middle
Ultimately, an advisor's task in all this is to become as much a facilitator of communication as financial advisor. If an advisor's interpersonal skills are rusty, he'd better start polishing them up. Fact is, if parent and child don't openly discuss matters, the rep is headed for trouble. “You have to be a family counselor, not just an investment advisor,” says Hirshman. That means, for example, taking the time to get to know not just a client, but also their children or parents, as the case may be, as well as the idiosyncrasies of how they interact. That way, an advisor can head off potential problems before they occur. “The financial advisor can really help to smooth out the wrinkles,” says Eileen Gallo, a psychotherapist in Los Angeles who specializes in issues related to money.
Getting children involved can have a few other added dividends for advisors, as well. First, there are the legal ramifications. “If you act solely based on the recommendation of an aging client — or avoid the person's recommendation — you could be liable if a problem develops,” says McKinley.
What's more, “it's a great way to build your clientele into the next generation,” says Henske. It may sound callous, but the fact is, if an advisor provides sound advice to aging clients, and their children see that work firsthand, chances are better they'll stay with the advisor once they receive their inheritance. Henske recalls a client who brought her mother to see him for advice. When the older woman passed away, her son, a school teacher, also became a client. “He suddenly came into a large chunk of money he wasn't used to having,” he says. And, of course, his first thought was to stick with the guy who had helped Mom. Such an outcome shouldn't be the only, or even the main reason, to get involved. But it certainly is a nice added attraction.