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A Playbook to Combat Planning Resistance

Successful retirees solely managing their own complex portfolios are setting heirs up for a challenging handover.

Martin, a business acquaintance in his mid-70s, was diagnosed with an advanced form of cancer a couple of years ago. The prognosis wasn’t good. But after several rounds of therapies, including radiation and chemo, he beat the odds and went into remission.

Six months after doctors gave him the all-clear, he came to see me, relaying the details of his devastating diagnosis, his difficult treatments and, ultimately, he and his family’s jubilance as it became clear he would survive the ordeal.

Martin is a retired financial professional, astute with investments, who manages his own investment portfolio. We always have great conversations about business and investments, but he never seemed interested in our services before, so I wondered what he was doing in my office (this was pre-COVID-19).

“I’m here for my wife,” he conceded. “She doesn’t know anything about our finances. She doesn’t even know how much money we have. And if something should happen to me, she’ll be utterly lost on what to do and where to find everything.”

I have ongoing conversations with several long-time prospective clients, many of them just like Martin. They’re all men, typically in their 70s, and they’ve all been extremely successful in their careers. Typically, these types of clients have very tangled and complicated financial situations (that include various trusts, partnerships, etc. and investments across nearly every asset class). Most have, up to this point in their lives, managed the complexity on their own. They have come to seek help organizing their portfolios and accounts, consolidating where necessary, and simplifying their finances. The goal is to have their ducks in a row so their spouses or children will be able to manage everything seamlessly, should unfortunate circumstances arise.

We have wonderful discussions, excellent relationships, and yet the conversation inevitably ends with two related comments. To paraphrase: “Thank you, but managing my portfolio, investing my money, and tracking my various assets and accounts is my hobby. I watch CNBC during the day to keep my focus. It is what I enjoy doing most in my retirement. I just can’t give that up yet.”

Then they add that they’ve done a good job managing their portfolios and based on that they cannot justify to themselves the fees of a multifamily office. They do not think the services will provide enough value to them. They can’t bring themselves to make the change.

Those sentiments are understandable. It’s very difficult to take away a key component of what keeps people happy, occupied and motivated. For many, managing their family investments is their purpose. On top of that, they’re satisfied with how they’ve done, and they don’t want to pay for what they’ve been doing for free.

There’s a disconnect with this view—the reality of the situation does not square with their concerns. They can still maintain control while working with an advisor. Further, there are substantial financial benefits of coordinating across investments, tax strategy, planning services and charitable giving. Additionally, the likelihood that their wives will outlive them is pretty high—in the United States, women’s life expectancy is roughly five years longer than men’s. That adds to the urgency of this particular situation, in contrast to one in which both spouses are well versed in the family’s finances.

These people are having these conversations for all the right reasons. They scheduled the meetings and lunches (now phone calls and Zooms) because they know they won’t be around forever. They understand the benefit and the critical need for an advisor so that their heirs aren’t left with a balled-up fisherman’s net of accounts and portfolios, and to have someone on hand with the institutional knowledge of their financial affairs. And they know the firm they hire will be around as long as their family needs it to be.

And so, while they acknowledge their own mortality, they have trouble taking the leap. It’s both an emotional and a perceived financial issue for them.

It can be very difficult to watch these generally thoughtful, intelligent and dedicated patriarchs potentially leave their families with the incredibly time-consuming and costly process of demystifying their accounts.

So we’ve developed a playbook to try to gently and slowly demonstrate that they can still maintain control of their portfolio decisions, and that it will ultimately be worth the fees they will pay, both in the short term, while they’re still around, and in the long term, to the great benefit of their surviving spouses and heirs.

  1. Involve spouses as early in the process as possible. They should understand how important it is to create a smooth transition plan. They should learn as much as they can about their financial position and what the situation will look like if they become the sole steward of the assets. Building this relationship is essential to ensuring that rational decisions will be made in the future. As I half-jokingly tell many of these prospective clients in our meetings, “I do not want to meet your spouse for the first time at your funeral.”
  2. Involve responsible adult children in these discussions whenever possible. It’s likely that adult children will ultimately have as much administrative responsibility over family assets as either of their parents. Involving adult children early can have the equally critical effects of 1) preparing them for that significant responsibility; 2) creating an understanding of the family’s financial structuring; and 3) observing or participating in investment decision-making. In one client family, there were four siblings with varying degrees of financial sophistication. While their parents were still alive, we held a siblings-only meeting to review the family’s financial structure. It triggered a productive conversation among them that we were able to facilitate, ending with a conversation that expanded to include their parents. The open dialogue was effective in empowering the family to make decisions on how to deal with family assets after one or both of their parents passed away and identify the differing goals and needs of the ultimate beneficiaries.
  3. Serve as the information repository and provide consolidated reporting on the entire portfolio. Many of these investors have private bank or brokerage accounts across several different firms, as well as private funds and direct investments. What they don’t have is a principal in charge, which is the role the advisor plays. Someone needs to have the role of gathering information on each asset: acquisition price and date, investment thesis, and anticipated liquidity. Having that knowledge clearinghouse is essential for these families because an institution’s role is to have a perpetual understanding of the full financial picture, and to outlive and outlast any one person.  
  4. Act as strategy partner. Once the information is gathered and performance evaluated, the next step is to sculpt an overall strategy. Identify any excess concentrations or missed investment categories. There might be investment options that can complete the portfolio.
  5. For this arrangement to work, the plan must be specific to the individual. The portfolio should be built around what’s in place already. Clients shouldn’t be forced to sell anything they don’t want to sell, especially if it might trigger adverse tax consequences. They should be able to avoid dismantling what they have built and created for themselves, and the client should continue to have the key role in calling the shots on their investments.

It’s hard enough for one person to manage these issues and decisions. So, imagine the family financial chaos when that one person has proprietary knowledge and control, and then one day that person is gone. This dilemma happens far too often. But Martin and his family will be able to avoid that fate—he ultimately came around and saw the value in engaging with a team of professionals. His family will thank him later.

Jonathan M. Bergman is president, TAG Associates

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