To Involve the Family in Financial Planning, Start With These 3 Topics
Starting a financial plan with your family doesn’t have to be tough. Focus on these three topics to help jump start your conversations today!
Despite the fact that a family’s financial health is one of the greatest indicators of both children’s future success and a healthy retirement, too many families treat money as a taboo topic.
Frequently one person in the household takes responsibility for the vast majority of financial matters. While this can be fine and functional for the day-to-day needs, it is important to engage the entire family in the bigger-picture conversations.
As a financial advisor, understand that people may not naturally engage in these types of conversations because they don’t feel equipped or knowledgeable. By bringing the conversation to everyone’s shared level of competence, you can make them feel part of the process, which can lead to more holistic buy-in and appreciation of the financial advice.
By engaging everyone in the family you have the ability to see and construct a financial plan that fits the household’s needs and unique risks in a truly bespoke way. To help clients get started, have them focus on three topics that greatly affect most families: children gaining financial independence, late life planning and estate realities.
Preparing Children for the Real World
Look to tools designed for millennials, such as Mint and Capital, as these are easy starting points. Explain how investing and compound interest benefit the young, and start investment accounts at robo-advisors to build investment and market literacy.
Parents can even have older teens or young adult children join the conversation when visiting their financial advisor.
In addition to investing, encourage children to invest into their own education and career development. Every college in the U.S. has some sort of on-campus employment office, and while some jobs might be earmarked for students on financial aid, there are invariably going to be some opportunities to make some money during free time.
One novel idea taps into policies employed by most employer-driven retirement savings plans. Much like some employers will match retirement savings contributions that employees make, advise clients to set up a plan with their children that matches a percentage of income that they make during the school year.
Planning for Late Life Care
For most individuals, preparing for retirement and later life care is the primary motivation for investing. It is important to keep in mind that any conversation around aging parents is inherently going to be emotional and necessitate a delicate touch. The thought of aging, potential long-term care and assisted living, and the passing of loved ones are all conversations that people will go to great lengths to avoid.
Understanding and addressing the sentiment that no one ever wants to be a financial burden to a loved one is key as well, which is something that can be mitigated or avoided with a proper plan. Walking the line between empathy and pragmatism is often difficult, but as the family’s financial advisor, it is to their benefit to be direct and realistic about the costs associated with growing old.
Human capital factors are absolutely key to this conversation. Geography, health, assets, income and quality of life are all part of constructing a financial plan that will lead to more comfortable and happy twilight years.
Don’t Fear the Estate
The most emotionally wrought financial discussions usually revolve around estate planning.
Parents may not understand the value of creating a trust or designating beneficiaries for the sake of their children avoiding costly, painful and time-consuming probate proceedings.
Every state has different rules around simplified probate processes, usually as a function of estate size; however, for estates that don’t qualify, the process can take up to two years and involve significant legal fees.
The conversation can be started as simply as asking about accounts that don’t have designated beneficiaries or when there are major life changes – such as weddings, births or divorce – that would prompt an update. As children get older, you can ask about the possibility of setting up a family trust and then re-address the conversation in regular check-in meetings.
A family’s financial advisor can bring a lot of valuable insights into these discussions because of the deeper understanding of their clients’ finances and lives due to higher need for financial advice. For clients that set up trust funds or investment accounts for their children, encourage the children to be part of regular planning meetings.
By building a rapport with them before they take over these assets, you will be better positioned to continue the relationship when they’re in control. Demystifying the process and relationship with the next generation will go a long way to the next generation knowing and trusting you. If you are only in contact with the parents, you open yourself up to a common outcome of the next generation looking for a new advisor with a fresh perspective.
If love is the bond that ties families together, a healthy financial plan is the foundation to keep these families from struggling to provide for the most critical stages of life.
As a financial planner, making the entire family a part of the advisement process better prepares the clients for all stages of life, and provides opportunities to retain the younger generations.