From the February 2011 issue of Research Magazine • Subscribe!

February 1, 2011

Advising the Widow

Guiding widowed clients is a challenging and gratifying task.

With the death of her husband, a widow’s family and friends will be steadfast in consoling her. But whom can she look to for authoritative, practical guidance in the enormous task of restructuring her life?

Often, a financial advisor. And for FAs whose books boast numerous client widows, this aspect of their practice is one of the most gratifying. Though requiring lots of patience, empathy and loads of detail-work, helping new widows perhaps represents why many dedicated advisors, at the outset, considered financial services to be their calling.

“Working with widows is labor-intensive and can be arduous and complicated. But, it’s also very rewarding to see these women become high-functioning again, that the assets are properly titled and that the financial plan is working,” says Lori R. Sackler, vice president and senior investment management consultant with Morgan Stanley Smith Barney. Based in Paramus, N.J., she focuses on families in transition.

In the United States, about 700,000 to a million women are widowed each year. Approximately 75 percent of widows are 55 or older; and widows account for 53 percent of women 75 to 84, according to U.S. Census data.

The two biggest challenges that face advisors helping recently widowed women are a lack of preparedness about their finances coupled with a profound fear of outliving their money. The FA’s process, of course, is easier with existing clients, provided he or she has helped them to prepare.

Working with referrals is the more difficult scenario because these widows are apt to lack a grasp of their investment portfolios and have not completed adequate retirement planning. Worse still, are those who have never so much as written a check, having deferred all financial matters to their husbands. They are indeed way behind on the learning curve.

One third of Dudley Barnes’s clientele consists of widows. “Most don’t care as much about the nuts and bolts of the investments as that they’ll be conservative, income-producing and able to sustain them over a lifetime,” says the independent, whose Barnes-Pettey Financial Advisors, managing assets of about $650 million, is affiliated with Raymond James & Associates. Based in Clarksdale, Miss., the practice is spread over five offices.

Barnes continues: “Typically, we make sure they have plenty of cash sitting around — maybe six months’ or a year’s worth of income in money markets. We find that increases their comfort level.”

A prerequisite to helping widows — and widowers, for that matter — is “a high emotional I.Q.,” says David Finkel, a managing director, investments, with Bank of America Merrill Lynch. “Absolutely, it’s being a psychological counselor first and foremost. The numbers take care of themselves.”

An empathetic approach, top listening skills and a major feel for pacing the process to avoid raising anxiety are essential.

“You need to be sensitive to their fears. Although the women may not say it, it’s the bag-lady syndrome,” says Stephanie L. Ackler, a managing director, investments, who heads Ackler Wealth Management of Wells Fargo Advisors, in New York. “They’re afraid that when they wake up one morning, they’ll find they have nothing.”

Voice of Reason

In serving the widow, the FA must play a variety of roles in addition to financial consultant: facilitator-mediator with family members, educator, partner and friend, to cite a few.

Often, notes Finkel, who manages $430 million in assets and is based in Merrill’s Atlantic County Office, in New Jersey, an advisor must be “the voice of reason.” For example, “well-intentioned children may pull at Mom or Dad to quickly sell their home and relocate near them. But frequently that’s a wrong decision.”

“Advisors,” Finkel cautions, “should be very leery of family members or third parties who want to make major decisions for the recently widowed. These clients tend to be vulnerable, in a fog and easily influenced. They need to slow down.”

Barnes, who prepares client wives by making certain they’re included in the investment planning, says widows he advises are generally ready to meet with him within a month of their husbands’ death.

“Most widows have no idea for the first three to six months what their income need is going to be. So we typically give them some income that we both think will be adequate; then in 90 to 180 days, we reevaluate the budget,” he says.

In serving the widow, start by involving another close family member. Then put together a team that includes the client’s accountant and estate attorney. Wills and trust documents need to be assembled, and all assets must be located. A cash-flow statement is essential, as is retitling assets so that they flow in sync with the directives of any trusts involved. In due course, the FA will design a new, and necessary, financial plan.

One point advisors with expertise in this client sector stress repeatedly: Never rush widows.

“You’re trying to get a sense of where they are but not pushing them,” says Wells Fargo’s Ackler, who manages assets of about $200 million. “Sometimes they get fearful of making a lot of changes immediately and feel pushed into it. So you draw it out, giving them some big-picture clarity about the process and emphasizing: ‘We’ll work together over the next year.’ That way, it becomes a partnership.”

And there’s no need to sprint ahead to retitle assets, says Finkel, a retired attorney. “You may be ready to proceed and move money around, but you should go very slowly in case trusts have been set up stipulating that the assets need to flow in a certain direction. Don’t be in a great hurry from the legal side of things — you may be reversing yourself a short while later.”

In general, investing-savvy baby boomer women are more equipped to deal with the financial crisis of losing their spouse than their moms have been. Generation Xers are even better prepared, says MSSB’s Sackler. “They’re much more engaged as a couple in family finances.”

Even so, Sackler requires all couple clients to meet with her at least once a year. “I want the woman to understand what assets she has. Statistics show that she’ll be responsible one day. I make it a point to have them come in even if they don’t want to,” she says.

Though a great deal of women are indeed financially knowledgeable, the recently widowed — of both sexes — tend to think less clearly than under ordinary circumstances.

“Some women are not only in shock, they’re scrambled,” says Wells Fargo’s Ackler. Advisors interviewed for this article concur that many new widows are even in the grip of total “paralysis.”

“Often they become stuck by their own fear and anxiety about the future,” says MSSB’s Sackler.

To be sure, this state can get the widow into financial trouble. “The ones who come in paralyzed just can’t make the decision to do anything,” notes Wells Fargo’s Ackler. “So they continue to spend down the principal instead of acknowledging that they need an investment strategy.”

Key: be sensitive to the widow’s condition. “Usually I don’t recommend that they make any major financial decisions for six months because they need to work through the grief,” says Sackler, with MSSB. “This isn’t someone who’s going to be in a state of mind to immediately grasp what you’re talking about.”

Sackler continues: “The most important element in a successful relationship with widows, is to make sure you relate to the person first and are cognizant of their pain.”

In eventually working up a new financial plan and investment strategy, bear in mind that a widow is likely to have a different risk tolerance from that of her husband; moreover, income needs have changed.

Notes Barnes: “Advisors should have an investment view that the portfolio can produce income without excessive risk and that this can be sustained. Widows don’t want to have to be dependent on anybody else for support. And we don’t want to see declining principal till she’s in her late 70s.”

For the financially unsophisticated widow — often a referral — the process is slower. “If they’re fearful of markets,” Barnes says, “put capital into things that are riskless but also have ‘buckets’” for asset allocation in accord with various time-frames. “All advisors should put some money in risk assets because of long-term inflation,” Barnes says. “If we tell clients this money isn’t needed for three to seven years out, they don’t get so upset about what they hear on TV about the instability of the world.”

When the widow is a mother with young children, advisors might well recommend more aggressive investments: her capital is expected to take care of the family for many years and, hopefully, provide college educations, Barnes points out.

In this scenario, “there needs to be a greater emphasis on cash flow,” Finkel notes. “This involves a lot of counseling and getting really granular with their particular circumstances to make sure it will be sufficient. The immediate alarm bell is: ‘Are we going to be able to cover our bills?’”

As might be expected, most men who have lost their wives aren’t as naive about finances as are many widows. But Finkel insists that the level of financial preparedness can “cut both ways. I had one widower client, an oil company executive, whose wife did all the investing and ran the checkbook. He was in a state of shock” about having to take over.

And certainly, men in mourning could use some handholding when it comes to managing emotions. “The widower is lonely,” notes Barnes. “He’s a man who has lost his mate, and he misses her.”

In fact, Ackler has observed that “many widowers grieve equally or more than widows. Sometimes their whole personal life is thrown into disarray because their wives really kept them very organized.”

All in all, helping the widowed presents a fine opportunity for financial advisors to shine in the role as effective teacher. Case in point: Finkel recently had a call from a woman client whose husband died about a year-and-a-half ago.

“She was the classic 1950s-type housewife: her husband had taken care of the financial affairs, something she never had to focus on. So,” says the advisor, “we were doing a review on the phone, when all of a sudden, she said, ‘I’ve heard that interest rates are rising. Should I be thinking about shortening up maturity in my portfolio?’ When I reminded her that 18 months ago, she wouldn’t even have thought to ask me that kind of question, we both laughed.”

He adds: “Part of a financial advisor’s function is to be an educator. With widows who don’t have financial background, you’ve got to spend more time getting them up on what sometimes is a super learning curve. By the same token, this is very rewarding.”

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