Meet Frazer Rice, wealth manager to the wealthiest of couples, and a de facto marriage counselor.
One thing Rice has learned at his job over the years is that couples may be on the same life path, but that doesn’t mean they agree on what to do with their money. In fact, they often don’t.
Rice, a vice president and a private client advisor at Wilmington Trust Corp. [WL], works directly with clients to figure out the best way for their assets to be managed.
One couple Rice worked with - he was an investment banker and she was a stay-at-home mom – had a $2 million mortgage, $5 million in assets, and a few children.
While the patriarch of the family wanted to invest more conservatively, the matriarch wanted to pour their money into riskier asset classes.
How did the couple work out their differences?
“Part of it was my explaining to the matriarch some of the rationale around conservatism and why it’s important to have enough money set aside to fund the mortgage, the education of the kids and to have a bit of a buffer in case something happened to her husband’s job,” Rice explained. “When the matriarch saw what things actually cost and how long it took to increase cash flow it broadened her context as to why it makes sense in some cases to be conservative over a certain period of time to take care of those cash needs.”
One of the first ways Rice tries to bridge the gap for a couple is to make sure they are both on the same page as to what they want their lifestyle to be and what their costs are. “A lot of times I find that each person has a very different idea of lifestyle and how that fits into cash flow and investments,” he said.
Some basic questions Rice tries to answer: How much income do you need to maintain your lifestyle on an after-tax basis? How much do you have in terms of assets? How much income can your assets generate? What other sources of cash flow are there?
Sometimes Rice finds talking to each person separately about how they would like to invest and what their fears and risk tolerance are helps.
Another way to help couples that are at odds about wealth planning is to create three pools of assets: one large pool that addresses the needs of the family as a whole and ensures that the objectives for growth and income are met and a separate account for each spouse.
The problem, though, when the husband and wife each have their own assets to invest is what happens when one does better than the other?
“You can open up a whole can of worms,” said Rice. “But if things even out over time it’s a way of educating both sides to the pluses and minuses of each approach.”
Another couple he worked with had $20 million in investable assets, which the couple decided to split into three pools. The patriarch wanted to invest in real estate deals and more risky asset classes. The matriarch was more conservative. By setting aside $16 million to make sure that the couple’s needs were taken care of the $4 million left over could be split between them to invest as they wish.
“In large part whether wealth planning works depends on the willingness of both parties to learn about what makes the other party tick in terms of their investment preferences,” Rice said.
The two worst case scenarios are the partners who stick their head in the sand until a problem develops and then when it blows up they don’t have a solution. The other is when one or the other partner thinks they are right and does not listen to the other partner’s needs or worries
“The more an investor knows and understands not only about the markets, but about their own strengths and weaknesses understanding the market and their appetite for risk the fewer surprises there are,” said Rice. “That advice probably segues over to relationships as well.”
John Hoffman, a managing director at Northern Trust [NTRS], works with clients and families that don’t have a family office and have liquid wealth over $25 million and up to $500 million. Having clients that don’t always see eye to eye or have competing goals is part and parcel of his job. His goal: to have them meet somewhere in the middle.
“It’s a slow building process,” Hoffman said in a phone interview on Tuesday. “It rarely ever happens all at once. You take them both out of their comfort zones and slowly get them to the point where if they look at their portfolio now versus three years ago it’s dramatically different, but not so different that they don’t recognize it.”
Another stress point Hoffman sees in couples is around estate planning. One spouse wants all the money to go to the children; another hopes to give it to their favorite charity. “There are a lot more emotions tied to moving wealth around for estate planning than investing in various markets around the world,” Hoffman said. “It takes a lot of education, convincing, and soul searching.”
Oftentimes, Hoffman said, there is a dominant player at the table who is driving the decision making. Hoffman’s job is to educate both partners so each one can feel an ownership over the process. “It is not as if either the husband or the wife is my client,” he explained. “Both are my client. I have to make sure both are getting the outcome they want at the end of the day. No one rules the roost.”