If you’re in your 40s or older, you may remember the big flap when TV sitcom journalist Murphy Brown, played by Candice Bergen, decided to have a baby without benefit of marriage. Among those who sounded off was then-Vice President Dan Quayle, who publicly chastised single mothers like the fictional Murphy for “ignoring the importance of fathers.”
Without in any way denying the value of dads, we’d point out that since that breakthrough in 1992, there has been a seismic shift in the modern American family’s diversity. Today, the traditional model of a married mom and dad and one or more children represents only 20 percent of families, according to “LoveFamilyMoney,” a 2014 study funded by Allianz.
“The key thing that came from this study is the identification of seven cohorts within the modern family,” explained John Carroll, head of U.S. retail distribution for Allianz Global Investors. Traditional families — opposite-sex married couples with at least one child under 21 living at home — are only one of the seven. The other six:
- Multigenerational families (three or more generations in the same household)
- Single-parent families
- Same-sex couples, married or unmarried, with or without children
- Blended heterosexual families with offspring from previous relationships
- Older parents (over 40), with one or more children under 5
- Boomerang families (adult couples with at least one child aged 21-35 who has returned home)
These six cohorts, which tend to skew older and more female, are more likely than traditional families to experience financial hardship. “Because of the greater complexity of their lives, they have a real need for financial advice,” Carroll pointed out. However, fewer than half (43 percent) have ever consulted a financial professional. The Allianz study targets them as “the next frontier” for financial advisors.
Broader, deeper relationships
Taking on new clients among these nontraditional cohorts will mean dealing with expanded relationships. Instead of working with one individual or a single-generation couple, you may be involved with a much greater number of people and multiple generations’ concurrent needs.
“This changes what advisors will have to focus on,” Carroll observed. “They’ll need to get more personal in the topics that they’re discussing. They’ll have to have a deep, empathetic understanding of their clients’ specific needs and characteristics.” Deeper understanding will enable advisors to customize solutions that go beyond investment products to cover tax issues, education funding options and so on.
Carroll noted that advisors should be prepared to spend more time on relationships. Traditionally, he said, serving clients was “quick and much more transactional. Now it’s morphed into a more planning-based culture, which takes more time. And now you have these more complicated families that require different solutions, which will take even more time.”
This may sound daunting, and could lead to reviewing the advisory compensation structure, but in Carroll’s view, continuing to focus on a traditional client base of older white males isn’t really an option. “Those clients are going to look more ‘modern’ as they age,” he explained. “They’re going to have things happen in their lives that will force them into [nontraditional] cohorts. They might have boomerang kids; they might end up in a multigenerational situation; they might have second or even third marriages. So their lives are going to change. Some clients will still be traditional but most won’t, and advisors need to get used to this.”
More fingers in the pot
If your own family follows the traditional model, it may be difficult to imagine the scope of changes in your practice. “Many advisors don’t reflect the changing diversity of our nation, whether it be their family structure or diverse ethnicities,” said Cam Marston, president of Generational Insights in Mobile, Alabama, which specializes in the impact of generational change (see page 64). “But the traditional ‘Americana’ household of husband, wife and a few kids may now include a few ex-husbands and ex-wives and quite a few stepchildren. There will be a lot more fingers in the pot and a lot more people impacted by a breadwinner’s decisions.”
Although such family structures may seem “alien,” Marston added, “advisors can’t flinch when they hear these things. These modern families have become the new norm, and they may have long tentacles, which will impact future business.”
Advisors will need to learn to map out a family’s structure so they can clearly understand the decision-making implications. Good communication skills and an understanding of basic psychology will be more helpful than ever for dealing with the greater complexity of these relationships. You’ll need to be prepared for “heirs who don’t know how to manage money, clients who don’t want to do any proactive decision making for the money they’ll leave behind, new clients who want less interaction and who don’t want to delegate decision making [to you], a more competitive marketplace due to robo-advisors and hot competition for anyone under 50 years old who has investable assets,” Marston summed up.
For some advisors, expanded understanding of client needs can be a radical change. “The financial advisors I’m working with have somewhat of an old model [that assumes that] presenting the facts and figures should be good enough,” said Ted Klontz, founder of the Financial Psychology Institute in Nashville and a psychologist who specializes in behavioral change. “But the younger generation is looking for relationships. Financial advisors who are focusing on what that means and how to do it are ahead of the game.”
The difficulty with many nontraditional clients, Klontz said, is that “they really don’t know what they want. They say some words, trying to convey an image of what they want,” but they haven’t reflected enough to be clear about it. As a result, the plan they end up with may not address their inner dreams, hopes and desires.
“I always say that if the client is not following the plan, it’s not really their plan,” Klontz said. “Once you get a clear picture of what you want, nothing will stop you. If it’s not a clear picture, anything will stop you.”
To develop plans that clients will embrace, you may need to delve deeper to figure out what they are really saying. “Advisors need to do deep listening to serve their clients well,” Klontz suggested. “I call it exquisite listening.” He explained that this doesn’t simply mean being quiet when the client talks. You need to really listen, not be thinking about how you’re going to respond.
Does this mean taking a lot more time with clients? “Not necessarily,” said Klontz, who conducts listening workshops for professionals. “Many of my clients I see only once, but I listen deeply to what they want and need. Anybody can do it with practice.”
Staying mentally and professionally flexible
The most important thing advisors should know about nontraditional clients is not to make assumptions, noted Carolyn McClanahan, who is president of Life Planning Partners in Jacksonville, Florida. “Listen and learn about the family structure and interaction before you suggest any action,” she counseled. “The No. 1 rule is not to stick your foot in your mouth.”
For example, if a client starts talking about her newly graduated son, don’t ask if he has a girlfriend. He may be gay. “Ask whether he has a significant other,” McClanahan suggested. “By your language, you show your openness about alternative family styles.”
Sensitivity and resilience are key in dealing with multiple generations. You may already be providing some services along these lines. “We do very basic work with children and grandchildren as part of our client agreement,” McClanahan said. “Let’s say there’s a daughter who just graduated from college and needs to make decisions about her 401(k). We’ll advise her free of charge. Spending a few hours like this is a great way to develop a connection.” If parents later need assistance as they age, you’ll feel more comfortable communicating with the children. The kids will feel more comfortable with you, too.
Working with nontraditional families may also require flexibility in how and when you meet with clients. McClanahan ticked off some examples: “Using a lot of video conferencing; being ready to meet in off hours and across different time zones; being willing to embrace things such as social media; and having online portals where clients can have easy access to their information.”
Three key issues for families today
Our interviews suggested that advisors may need to help families of all kinds with three particularly thorny issues: old age dementia, childlessness and boomerang children.
Dementia. “Clients’ diminished capacity is, to me, the biggest thing that advisors have to prepare for,” said Kol Birke, a financial behavior specialist who is senior vice president at Commonwealth Financial Network in Boston. “The best thing to do is to have clients sign a document that enables you to speak to several people in their network of support — often their kids.”
“Dementia is a huge problem,” the Financial Psychology Institute’s Klontz concurred. “Working it into the plan early enough is a real challenge.” You don’t want to wait until symptoms actually appear.
“My experience is that many planners don’t want to think about dementia in their own situation,” Klontz pointed out. “Since they don’t have a plan for themselves, they tend to minimize it with their clients.” The solution: Factor a potential transfer of decision making into your own life plan. “If I’ve dealt with it myself,” Klontz said, “I’ll be much more comfortable helping my client deal with it.”
Childlessness. According to the latest National Vital Statistics Report (NVSR) from the Centers for Disease Control and Prevention, the U.S. annual birth rate has been stuck around 6.25 per 100 women since 1970, about a third of what it was during the baby boom. The general fertility rate sank to a record low in 2013, according to the January 2015 NVSR.
On the plus side for advisors, childless two-income families can make great clients. As Allianz’s Carroll noted, they tend to have more discretionary income, and they still have retirement and estate planning needs.
The downside is that these couples won’t have kids to lean on in later years. “We [advisors] are going to be more involved with planning for long-term care as our clients age,” Life Planning Partners’ McClanahan commented. “If they don’t have children to provide care, the advisor will be the go-to person to consult.”
Her firm takes special care to help clients negotiate family issues that come with aging. For example, she said, “We encourage them to take tests to determine if they should still be driving. We help them with the logistics and the financing of long-term care, with hiring in-home nursing, with placement in facilities.”
Boomerang kids. “Fundamentally, more than even the shift in the family structure, there’s been a shift in parental expectations and responsibilities,” Commonwealth’s Birke observed. “Fifty years ago, parents would have said, ‘Go get a job — you’re out of here.’ Today, they expect to be able to pay for exorbitant room and board at any college, and even to accept the kid back into the home afterward, at the expense of their retirement savings. This is coming at the same time that companies are eliminating pensions.”
According to a 2014 survey by American Consumer Credit Counseling, one out of three U.S. households provides financial assistance to adult children. That can take a huge toll on the retirement portfolios of generous parents. Birke suggested that financial advisors need to feel comfortable giving clients such life advice as “It’s okay to say no to your kids” or “It’s okay to tell them, ‘We can only afford the state school.’” He added the reminder that parents can borrow for college, but not for retirement.
“My notion is that the truly deprived child is one who’s never had to struggle,” Birke said. “So being tough on the kids, making them pay rent while they’re living in your house or even booting them out, is in reality often a gift in the longer term. I think financial advisors should be communicating this message to help parents safeguard their own financial futures, and to set an example of what their kids should prioritize when they become parents themselves.”
Providing the right resources
Is it necessary to have someone on staff with the same background as a target cohort, such as lesbian, gay, bisexual and transgender (LGBT) families? “It can be helpful,” Klontz acknowledged, “but you can’t have one of everything.”
It’s more important, several of our interviewees said, to understand the needs of your clients and have a sincere interest in them. “If you’re intrigued by a particular group of people and think you can help them, it’s fine to specialize in them,” Carroll said. “You don’t have to be from the same cohort.”
“The most important thing is to ensure that your clients feel safe being themselves in your office,” Birke emphasized. “You don’t have to be LGBT to do that for LGBT clients.”
With particularly complex client needs, it may make sense for a team of advisors, or an advisor and a therapist, to work with the family. Life Planning Partners founder McClanahan said that at her firm, “We have four people who work with our clients. When we face issues outside our expertise, we have a financial therapist who works with us. We also get involved with estate planning by attending meetings with clients and their estate planners. That way, nothing gets lost in translation.”
Advisors may also find it beneficial to offer access to broader resources such as adoption specialists, gerontologists and child psychologists. “That’s a 12 on a 10-scale,” agreed Klontz. “My model in my head is that if they’ve got a problem anywhere, we become their answer person. We have [resources] we’ve vetted. If they’re buying a car, we know the best places to go. If a client wants a female financial planner who went from poor to wealthier, I find that person for them.”
Birke suggested that this level of service can pay off in higher rates of retention and referrals. “The more your clients trust that they can come to you with anything, the more loyal they will be,” he said. “So it’s very helpful to have these extended networks of support. I’d add therapists and eldercare specialists to the list.”
Locating respected specialists may not be as difficult as you expect. “NAPFA and FPA are great organizations to reach out to on matters outside your expertise,” McClanahan noted. An emergency room and primary care physician for 13 years before switching to financial planning, she drew an analogy with medical practitioners. “If you’re in family medicine, you know how to take care of 90 percent of what you see. You know what you know and what’s critical, and you know what you don’t know, so you can get help,” she said. “To me, financial planners should be family doctors of the finance profession.”
Success in modern family planning
Advisors focused on the future need to embrace the diversity of their new job description. “It will help keep your practice intact as investment management becomes commoditized, which is happening now,” McClanahan urged.
Not everyone will want to change their approach in order to cultivate nontraditional families, and that’s okay. “It depends on whether you have a practice or a business,” she said. “If you have a practice where you’re taking care of people and you want to die with your boots on, then it’s not a big deal, but if you have a business with a succession plan, you will need to diversify your client base.”