Which Comes First - Family Needs vs Investments?


The relationship between an investor and his or her advisor is complex. While the investment management process is a critical part of the relationship, in order to complete the appropriate financial planning it is important for financial advisors to develop a deeper relationship with the investor and his or her family.

In fact, it is arguably essential for financial advisors to discuss family dynamics and goals before delving into financial matters. This is because family dynamics can have a significant impact on financial decisions. For instance, if a couple is planning to have children, their financial goals and priorities may change. They may need to consider issues like saving for college education, increasing life insurance coverage, or even purchasing a larger home to accommodate a growing family. On the other hand, if a client is in the process of getting divorced, their financial situation may be in flux, and their goals and needs may be different from those of a client who is happily married. In such cases, the advisor needs to take a different approach, and consider things like the division of assets, alimony, and child support.

By understanding a client's family dynamics, a financial advisor can better tailor their advice to meet the client's specific needs and goals. Additionally, discussing family can also help to build trust and establish a deeper understanding of the client's financial situation and objectives, which can lead to more effective financial planning. Moreover, discussing family can also provide a more holistic view of the client's financial situation, and help the advisor identify any potential conflicts or challenges that may arise in the future.

Recently, Spectrem Group completed research with investors with $100,000 to $25 million of net worth and asked about the importance of non-investment discussions in the overall relationship. In particular, Spectrem asked investors if their advisor had discussed certain issues during the current recessionary environment.

As you can see, 32% of investors indicated that their advisor had not discussed non-investment issues with them. Similarly, 38% said that their advisor had not communicated with all generations of the family.

Spectrem also asked if certain types of advisor communications impacted their loyalty. Overall, more than 30% of investors indicated that if an advisor remembers birthdays and other family events, they become more loyal. Other factors impacting loyalty include proactively being contacted about non-investment topics, discussing one’s children and work, as well as guidance regarding elderly parents.

In conclusion, financial advisors play a crucial role in helping their clients achieve their financial goals. By discussing family dynamics and goals before delving into investment matters, they can better understand the client's needs and tailor their advice accordingly. This can lead to more effective financial planning, and help clients achieve their financial goals, while also addressing any potential challenges that may arise in the future. It will also lead to greater long-term client loyalty.