Financial Advisors

How Can an Advisor Address Diversity Within a Family Unit?

A friend in the financial services industry asked me a simple question recently: Do you guys have anything that would help me work through/manage family diversity?

Without giving specifics, he shared how a client and his partner wanted to future-proof the family wealth, and, for the first time, include their two 20-something children. At the first meeting, the client (the father) had a plan. The partner (the mom) acquiesced. The two kids challenged their parent’s plan, since it was the first they had heard about it.

My friend went on to tell me that the meeting descended very quickly into emotional behaviors ranging from “you never asked me” and “that's not what I want to do with my life,” followed by no consensus. Hence my buddy calling me to ask the question.

Aren’t we all alike? 

It's a scenario we hear all too often. Little or no real attention is paid to family diversity. But it's a real thing, and it’s important.

Here, I’ll focus on the old-school traditional nuclear family: a married couple with two children where the husband goes out to work, the wife manages the home and has part-time employment, and two kids eventually start their careers.

To be discussed was the transfer of both earned and (considerable) inherited wealth. 

At this point, I should say that what follows is the impact of knowing/not knowing, the influence of behavioral variability on any form of decision making, whether a nuclear family, matrifocal lone parent, patrifocal lone parent, reconstituted family group, or same-gender couples.

In this scenario, add the emotion surrounding finances, and every advisor in the financial services industry who has faced family dynamics and diversity knows they need to be behaviorally smart. 

Understanding the natural financial personality of each family member before meeting them is vital. Therefore, family groups should have completed a family wealth briefing in advance of meeting with their advisor.

Diversity has a place in family decision-making as in any other part of life. Every family will have risk-takers, lifestyle spenders, planned savers or stable cautious don't rock the boat types. It's essential to capture the intrinsic characteristics of differing genders, generations and cultural beliefs.

Transparency and communication are significant here. That includes family meetings to ensure everyone understands the structure, why certain decisions need to be made and why certain people are in charge. 

What’s in that stack? 

Having established that, my question-asking buddy’s advisory firm indeed had a tech stack to help build portfolios, create plans and market to clients. I was curious to know why they had no system for understanding clients’ and their families’ financial behavior.

My friend certainly knew the value of having a discovery tool uncover and help manage both advisor and client behavior, and he understood the “wild card” that money and money decisions can bring to someone’s behavior. But he said it was not practical to replace the firm’s existing tech stack to accommodate behavioral insights. 

As is often the case in life, the solution is easier than my friend thought, because a behavioral discovery system can be integrated into an existing tech stack via an API (Application Programming Interface). So, without reinventing existing tech systems, a firm or advisor can leverage algorithms to understand the uniqueness of each client and family member, which, in turn, creates lasting connections and boosts engagement. 

(In the near future, an API won’t even be necessary for most sophisticated systems and programs to “talk to” and work with an additional system or program like the behavioral ones we’re talking about. But let’s not jump ahead too much, as exciting as it is.)

For now, the use of an API to reveal inherent behavior, bias and financial decision making enables much for advisor and client alike: 

  • Conversation about spending before it derails the financial plan
  • Measurement of a client's risk-taking propensity and risk tolerance
  • Identify, measure and parse a wide range of behavioral biases
  • Provide financial advisors with access to tools that do things like measure real-time market fear or exuberance
  • Clarify everyone's role, so it's known who makes financial and planning decisions and who has authority
  • Reveal how each makes and communicates decisions and communicate

Parsing diversity at home 

I understand diversity is a massive topic at present. And, granted, diversity within a family unit may not at first be what you think of when considering the topic. Still, diversity is in our homes. In our families. 

That means advisors who deal with any size or type of family unit need tools to objectively address and manage what makes us each unique. From there, discussions and activities around money and money decisions will be optimized.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Leon Morales

Leon Morales is Managing Director of DNA Behavior International, which pioneers behavioral finance insights for real results in real time, including an API solution for firms.

Read Leon's Bio