How Do Wealthy Investors Handle Household Finances?
Marriage counselors are quick to suggest that couples who are considering joining together in wedded bliss first discuss a few key topics, and chief among them is money.
“Money” is a topic that includes a great number of sub-topics related to marriage finances, but perhaps the most significant one is “Who is going to deal with our finances?” The next question is often “Are we going to put all of our money together, or are we going to keep our money separate?”
There are varying methods in both cases. To simplify, they can be boiled down to “Who is in charge here?” The answer to that question will go a long way toward explaining how a couple deals with matters related to savings and investments.
Spectrem’s recent research, Financial Behaviors and the Investor’s Mindset, discusses how investors answered that question. The study asked married investors to describe the level at which household finances are pooled or kept separate, who handles financial decisions, and how much a couple agrees on the decisions that are made.
It’s a complicated topic, the kind of material that might be best handled by a marriage counselor. But an advisor needs to understand how a couple is going to make decisions related to their investments, and whether an advisor is dealing with one entity or two in conversations and other forms of communication.
“This information is key to understanding how to approach investors in discussing financial plans and investments,’’ said Spectrem president George H. Walper Jr. “Advisors need to know if they are dealing with a single decision-maker or to what extent couples make financial decisions together. Not having that information can lead to a degree of misunderstanding between advisor and investor.”
Among Ultra High Net Worth investors with a net worth between $5 million and $25 million, 59 percent pool all finances together as a household. This percentage increases as wealth decreases. It is likely that in the high wealth segment, one member comes into a marriage or union with their own significant wealth, and there is a desire to maintain separation of those funds.
Among those UHNW investors who do not pool their finances entirely, 28 percent pool most of their finances while each spouse maintains accounts they can use individually. Nine percent of investors separate most of their financial accounts while 4 percent do not mingle their finances at all.
When working with a couple, advisors need to know if the couple is investing pooled funds, or if the funds are coming from one member or the other. Even with pooled funds, it might be helpful to know if that pool is generated more by one spouse or partner or the other.
Whatever decision was made regarding how finances are handled among two people, there seems to be little disagreement about the process. Asked to rate the agreement between the investor and spouse about their finances, UHNW investors place the agreement at 83.68 on a 0-to-100 scale.
Advisors having a conversation with two members of the same household will probably immediately determine who is making the decisions. Among UHNW investors, 51 percent of the married households indicate the husband makes most of the financial decisions, and 44 percent say that financial decisions are being made jointly. Only 3 percent of the households have the wife making the decisions.
When there is less money in the discussion, there is also less agreement on financial decisions (which is why marriage counselors encourage the money conversation among couples for whom money is more of a controversial issue).
The study also segments investors by occupation. In this case, that segmentation is interesting because UHNW Business Owners are most likely (13 percent) to have entirely separate finances in the household.
Top Takeaways for Advisors
When investors meet with you as a couple, it’s not as simple as assuming they make financial decisions that way. Determining the pecking order and communication that exists between two members of the same household must be ferreted out and then noted for future use.
Where this information matters most is in terms of communication. Do you text or email one of the two or both?
Ask each person how involved they would like to be in the investment discussion. If one individual is not interested, note that but still copy them on communications, etc. You may want to re-visit this conversation annually because interest levels and relationships change.
It is possible for a married couple to meet with an advisor but have individual investment plans. The easiest way to handle an initial meeting with a couple is to avoid making assumptions until you have a conversation.
*According to Spectrem research, there are currently 29.8 million households with $100,000 - $1 million in net worth (not including primary residence, NIPR). There are 9.1 Millionaire households ($1 million - $5 million net worth, NIPR), 1.21 million Ultra High Net Worth households ($5 million - $25 million net worth, NIPR) and 145,000 households with more than $25 million in net worth, NIPR.