One of the many terrible financial aphorisms I hear from fellow advisers is “make sure the wife is in the meeting.”
Apart from the really obvious problems with that statement, it ignores the fact that, in reality, most couples delegate their financial decisions in some way. It’s rare that there’s a 50/50 balance.
As such, advisers absolutely need understanding and buy-in from everyone involved in the process, but trying to drag a disinterested partner along with conversations about the nuts and bolts of an investment strategy is torture for everyone, and probably unnecessary.
In my experience, most couples have a “lead”, and that “lead client” tends to drive and coordinate financial decisions for the couple. Nowadays, it is as likely to be a woman as it is a man.
Sometimes that’s a product of work history. For instance, it may make more sense to delegate collective decisions on household finances – at least to some degree – to the trained accountant in the house.
As a result, in my experience it’s rare that couples with joint finances want a truly segregated approach to risk and asset allocation. There’s rarely a disagreement over the extent to which we ringfence strategies for individual partners. Except when it comes to ESG. I look after quite a few couples where only one of them has ESG screening.
The Easy Bit
ESG conversations are inherently tricky to broach in a non-judgmental way. Nobody wants to be cast as “the unethical one” in the room. For me, different approaches to this issue are a sign of healthy dialogue. It shows each partner feels OK expressing their views, even if they differ. It’s also a good sign that you are creating a comfortable space for discussion.
To the question of whether it complicates portfolio management and risk mapping, I don’t think it does. The assumptions we use in the lifetime cashflow forecasts underpinning clients’ investment strategies are much broader than our portfolio construction process, so there’s no need to change the underlying assumptions when we’re working on big-picture strategy.
The inherent risk of reducing the universe of securities is mostly conceptual and is explored in the discussions that occur about the forecasts. True impact investment is different of course. We’re talking here about broad ESG screening, without a fundamental shift in the risk and return profile.
When it comes to implementation and monitoring, our platform of choice makes it very easy to segregate approaches for different tax wrappers under different owners, and to link them to separate model portfolios for rebalancing purposes. That bit is easy.
The Gateway
“Lead client” considered, on this issue, the merit of ensuring both clients are in the room is clear. It’s about ensuring the adviser is aware of the whole picture before making recommendations, and that nobody is getting dragged along with someone else’s advice process.
Where there are genuinely disparate views that can’t be reconciled, I think it’s right advisers should cater for segregated approaches. But it’s interesting that there seems to be more scope for differences of opinion on the ESG screening decision than other areas. It clearly isn’t right to assume couples share the same feelings and values on any issue.
In this sense, ESG might be a gateway to engagement on other financial matters for clients. That makes sense because ESG is absolutely about more interesting and more emotive things than just money. That can only be a good thing. Clients should decide to screen only after proper engagement with the decision from their own personal perspective. Otherwise, journey risk could be uncomfortable.
Greg Moss is founding director and chartered financial planner at Eleven.2 Financial Planning
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