Episode 3: All’s well that ends well

Episode 3

This episode, on Prosper:

Family lawyer and mediator Nathalie Boutet explains how to reduce the financial and psychic costs of divorce for clients. Then, philanthropy advisor Gena Rotstein of Karma and Cents provides strategies for how to approach the charitable giving discussion—including discovering clients’ values. Transcript below.

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Hosted and produced by Bruce Sellery

Mixed and edited by Jason Perrier of Phizzy Studios

Editorial direction and visuals by the Advisor’s Edge team

© 2019 Transcontinental Media G.P.

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Bruce Sellery: Hello, I’m Bruce Sellery. This is Prosper, the financial advisors’ podcast from Advisor’s Edge. Coming up, the peace premium; helping clients navigate a divorce.

Nathalie Boutet: Try to understand, what are the different types of legal systems that people can go into, because the referrals that they’re going to make to lawyers will make a big difference in their cases. So, if they’re the first responders to this situation, is to really be mindful of what is needed for the family.

Bruce Sellery: Family lawyer Nathalie Boutet on how financial advisors can reduce the cost of divorce and increase the value of their advice.

Gena Rotstein: The best advisors see their role in the philanthropy conversation as part of the team.

Bruce Sellery: Gena Rotstein of philanthropy advisory Karma & Cents will be here. That’s coming up on Prosper.

Stefanie MacDonald: Hi, I’m Stefanie MacDonald, group publisher of the Advisor Group at TC Media. Did you know Advisor’s Edge also hosts advisor events? We’ve recently held conferences about ETFs, women in the financial industry, and improving your practice in Toronto, Vancouver, and Montreal. To learn more about our past and upcoming events, head over to our website at advisor.ca/events. But be sure to register early as most of our events sell out.

Bruce Sellery: Divorce is costly. There is no debate about that. The emotional and financial toll can be massive and financial advisors are often dragged into all that drama. If one of your clients is going through a separation, of course you want to help them through it. First because you genuinely care about them. And second, because safeguarding their assets makes good business sense. Nathalie Boutet is a lawyer with Boutet Family Law and Mediation. She joins us now to talk about how financial advisors can support better outcomes for families. Hello there.

Nathalie Boutet: Hi there.

Bruce Sellery: A couple finds themselves in trouble. There can be a lot of players, marriage counsellors, accountants, lawyers. There’s a lot of people around. What would you say is the role of the financial advisor when clients are going through a separation or divorce?

Nathalie Boutet: Try to understand what are the different types of legal systems that people can go into because the referrals that they’re gonna make to lawyers will make a big difference in their cases. So, if they’re the first responders to the situation is to really be mindful of what is needed for the family. And it’s hard to imagine what is needed if they don’t have a sense of the different legal systems. So I think that’s one of the topics we will address.

Bruce Sellery: When you talk about the different types, what do you mean?

Nathalie Boutet: Right? So, on the spectrum of the least expensive model to the most expensive model, the most expensive being going to court-

Bruce Sellery: Bringing out the nuclear warhead-

Nathalie Boutet: Yes.

Bruce Sellery: On the one hand and the other is what are, I don’t know, downloading a divorce kit online?

Nathalie Boutet: Is one-on-one, trying to do it, the two spouses together.

Bruce Sellery: Right.

Nathalie Boutet: It gives them more control over the outcome and gives them more ability to source out resources that they might need to help them along the way. But in the middle you have mediation is one type, collaborative negotiation is another type, traditional lawyer negotiations, that’s where the lawyers are not trained in collaborative negotiation. And then there’s arbitration and then court. So, there’s a lot to know about all of these systems, but the advisor should know that there are different types of lawyers that offer different solutions and perhaps to take a step back and really go and read out about these types of services.

Bruce Sellery: Given that you work in family law, you deal with people in these circumstances literally all the time. Financial advisors, depending on where they’re at in their career might have dealt with it frequently, but maybe not all the time. What wisdom would you have for them in those very early stages? So, before it gets to the point of negotiating separation agreements or anything like that, what advice would you have for those initial meetings?

Nathalie Boutet: I would say not have drama. I would say stay calm. If you’re a wealth planner and you’re helping your clients to save some money, the best thing you can do is to be calm and say, “You guys are going to get through this. We’ll find resources that are good for you.” And people that are going through a divorce are very needy and they’re very emotional and they need their cheerleaders and they need their people to side with them. “Yeah. Can you believe they did this? Can you believe she did that? Can you believe this and that?” And yes, you want to be a reassuring advisor and figure for the person that’s going through a divorce but don’t be sucked into the emotions of it.

Bruce Sellery: Don’t pile on. So, if that’s the pre, maybe the second phase is the during and you’ve got some specific ideas on things that advisors can do to be supportive. One, basic modeling on cashflow and financial support. What kind of work do you think advisors can do to really be helpful in that time?

Nathalie Boutet: Yeah. So, I would say … Ask the client to have permission to speak to the lawyer. And together as a great team, you would build an understanding of the settlement that is being worked, not just at the end of the settlement but during the negotiations and then build a budget for the client. And this is how much you’re going to need and this is the support that’s coming your way. These are your assets, these are the types of assets you have. How many years from retirement are you? When are you going to start depleting your assets? Do you have enough? Elder care is very expensive. How do we plan for that? So, really be an ally in the negotiation and it sounds trivial or obvious, but not a lot of clients think about it. Then they go through a divorce process with a lot of fear and insecurity about their future, and that’s why I love working with advisors and financial planners because they really help to empower the client to be more aware of their circumstances, what they need and yeah, it’s an invaluable assistance.

Bruce Sellery: The lawyer has the framework for what the law says on what are the minimum acceptable on asset division. What’s the dance between the lawyers and the financial advisors on what that settlement actually looks like? Because I’m sure many settlements don’t. They’re not the minimums. There are whole bunch of reasons why you would settle and divide assets in a different way.

Nathalie Boutet: Yeah. So, I would say that the advisor’s intimate knowledge of the types of assets that are in the portfolio can be used to craft a settlement that makes sense. So, I had a case recently where the advisor was working for the husband and the wife and one of the asset was income producing, I can’t remember the name of the asset, but it was a complicated type that lawyers would not even think about. And he helped us on both of their behalf to understand it and how to separate it to minimize tax and maximize the efficiency of the portfolio. So, sometimes you can use the advisor to help understand what’s the best way to separate the portfolio.

Bruce Sellery: Advisors and lawyers typically are paid in different ways. Advisors are paid based on assets under management. Lawyers are paid typically either by time or by a particular process. What is a way that an advisor could really step up their game to minimize the amount that a client would spend if they were paying the lawyer by the hour?

Nathalie Boutet: I don’t know how to answer that question. I do believe that clients benefit from working with advisors and it’s … going through a divorce, it’s expensive. If they do it in a collaborative way or with mediation, they can minimize the amount that they spend on their lawyers. Usually the lawyers are the most expensive of the advisors that work with the family. So even if it’s an hourly payment to the advisor to provide the backup information to really help people understand their needs. I believe it’s worth the time and the money.

Bruce Sellery: Post divorce, what do you think advisors should keep in mind in terms of maybe a new mindset from their client, new practical risk tolerance? There’s a bit of a reset that seems like it would need to occur.

Nathalie Boutet: Yeah. So, people make plans together when they have an intact family and then suddenly they have half less to plan for their future. So, I would say that a lot of women tend to be very conservative. Perhaps it’s the first time they manage their own money and in my experience they have very low risk tolerance. So, really understanding the shock of a divorce and understanding and not minimize the new reality for this person. Even if it’s the, the person who is more savvy with financial planning and who is typically making decisions for the family, it’s a shock because they had to give away, not to give away. They had to share their resources and they have way less and the whole mindset is different. So, really be gentle and understanding of the people that are going through a divorce and accompany them without pushing and all that.

Bruce Sellery: And I guess advisors would want to hold onto at least some of those assets because it’s unlikely that they’re going to hold onto the whole pie, right? Do you see it where people stay with one advisor? Must be rare.

Nathalie Boutet: I had a case recently, a different case where the asset manager was from a very successful private company and they really wanted to retain the wife’s portfolio and even if everyone said, “They’re great managers, they’re going to make you a lot of money.” She could not be with the same managers of her ex. So, yeah, genuinely you think you’re going to do really good for this person, but it’s understanding that sometimes it’s too emotional to be still connected in that way with the separated spouse.

Bruce Sellery: What do you think some of the pitfalls are for advisors as they walk this path with their clients and I’m thinking of things like maybe they’ve gone through an acrimonious divorce themselves or their parents did or they can’t picture what a collaborative approach would look like. What are some pitfalls?

Nathalie Boutet: Yeah, I would say the biggest one for me that it’s a huge irritant is when people don’t manage their referral list on a regular basis. If they’ve been sending, and I have nothing against good lawyers in any field, but it’s just understanding that there are new models of negotiation that keep being refined. So, being aware of what’s what’s available and really think about how you can calm things down and not immediately if someone says, “This is really urgent, I want to really hurt them financially, I want to cut off all their credit cards and whatnot.” Really take a step back and, and perhaps not get into all that.

Bruce Sellery: Do we really need to go nuclear on this one?

Nathalie Boutet: Right.

Bruce Sellery: Would be the question.

Nathalie Boutet: There are cases where someone is out of control and they’re going to take money out of the country, but those are the rarest of the cases. If that happens, yes, you send them to the litigator that’s available, you start a court case immediately, you freeze the assets, but that’s not the majority of the cases. In fact, those are really rare and I know there’s a lot of information online about what to do, take them out of your will, take them out of their life insurance, take them out of the credit cards, cut down, stop the limit on their credit card. Well, that’s going to have the other person hire a pitbull to undo all of that. So really think about it before you make those kinds of suggestions.

Bruce Sellery: Yes. Money conversations are difficult to have for anyone, often in any circumstance. What could advisors do to increase their comfort level in circumstances where their client is going through a divorce? And I asked because if they don’t have personal experience or they haven’t had clients who have walked this path 10 times before, it might really be … feel like they’re out on a limb.

Nathalie Boutet: Yeah. So they could themselves interview the lawyers on their referral list. I’ve done that with a bunch of the professionals that I use. I’ve interviewed them and now I have a better sense of who is on my referral list. So, meet the people that you refer. If you don’t have people on your referral list that do mediation or collaborative than go and meet these people. Even litigators, if you know that’s really important in some cases. So, be aware of that. Do your own research. And also what’s really important is that the team works together. So, if there is a lawyer involved in a financial advisor, speak to one another because sometimes it’s really hard for me as a lawyer when my client comes in and says, “Well my advisor says I should do this and that,” and it has no bearing on reality, or it’s good if you’re the advisor, but it has no sense whatsoever with family laws. So, having the advisors speak is really important.

Bruce Sellery: One of the things that distinguishes your work as a lawyer is the intersection of the law and the brain. Give us a flavor for how you bring those two things together. Because it makes intuitive sense that there is [how] the law is written, but we’re also human beings with emotions and feelings.

Nathalie Boutet: Well, exactly. And what happens is when people get all nervous and scared and fearful, their primary brain, their primal brain of being reacting to circumstances kicks in, the amygdala kicks in, then they get into fight or flight. And when that happens, the prefrontal cortex, where is the intelligence center where you make decision and analyze the good and the bad and whatnot. That takes center stage. So what’s primary there is your primary emotions of fear and anger. And so when I work with advisors and clients, I help them to understand how their brains work. And they can’t make decisions. You shouldn’t push them to make decisions when they’re upset. You shouldn’t even have a conversation with people when they’re upset. You have to wait for the amygdala to calm down the adrenaline and cortisol to dissipate 15, 20 minutes and then have a conversation.

And what happens in negotiation is people get all upset and then you say, “Well, what do you think? Do you want to do this or not?” And it’s, it’s terrorizing. So, we need to take a step back and really understand who’s in front of us, what is triggering them. Is it that they’re not going to be seeing their kids every day or is it they’re going to sell the house? It’s scary. So, to really understand the psyche of the people that we’re dealing with and to be respectful of what they’re going through.

Bruce Sellery: It’s very helpful. Nathalie, thank you very much.

Nathalie Boutet: My pleasure.

Bruce Sellery: Nathalie Boutet is a lawyer with Boutet Family Law and Mediation. We’re talking about how financial advisors can help their clients going through a divorce. Coming up on Prosper. The Four Seasons are a band. The Four Seasons is a high-end hotel chain, and the four seasons is a way to think about philanthropy. What?

Gena Rotstein: Why would you leave the sale to the end of the year? That just doesn’t make sense. So, if you have a full year to be building a relationship and a rapport, recognizing that money’s on the move right now, and it’s the largest intergenerational wealth transfer that we’ve ever recorded in North American history. To leave it to the fourth quarter of the year when everybody’s in a panic just doesn’t make sense.

Bruce Sellery: Gena Rotstein of philanthropy advisory firm Karma & Cents on why financial advisors should be thinking about giving year round and prosperous practice. A quick tip on building your business.

Cynthia Kett: Spending time listening to and speaking to both spouses equally, using words and examples to which they can both relate greatly improves the working relationship.

Bruce Sellery: Hey, there’s a ton of really great information and insight on our website, advisor.ca. There are articles on industry news, tax issues, investments, insurance, and practice management. You can also sign up for our daily newsletter and subscribe to our print magazine. We’ll be right back.

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Bruce Sellery: Bill Gates has billions and billions. For years he and his wife Melinda had been putting their massive fortune to work on causes they care about. Now, most of you don’t have clients who have started a software company that is now worth about a trillion dollars, but you do have clients who’ve done well financially and would like to do some good with their money, so how best to help them. Gena Rotstein is a principal at philanthropic advisory firm, Karma & Cents, and she joins us now from Calgary. Hello there.

Gena Rotstein: Hi Bruce. Thanks for having me.

Bruce Sellery: There is a big range in terms of how much financial advisors engage in this. So, assuming philanthropy is of interest to the client, how do the very best advisors see their role?

Gena Rotstein: The best advisors see their role in the philanthropy conversation as part of the team. So, we know that families or individuals that are of a certain net worth have other advisors that are influencing the conversation. And so knowing when to quarterback and when to step back is a critical skillset for any advisor. And especially when it comes to the philanthropy conversation where there is a technical solution to an emotional situation, family or legacy. That’s even more important.

Bruce Sellery: What is the prompt that the great advisors provide to even kickstart this conversation? I mean, I know that in some families that maybe there’s been an a liquidity event or there’s been an inheritance, there’s an obvious time to talk about it. And in some families there isn’t. And a great financial advisor can plant a seed that could bring about a really fruitful conversation.

Gena Rotstein: So, the prompts might be something like you’re about to sell your family business. Have you given thought to what you want to be doing with that capital once the sale is done? Or it might be coming from the client and the client might be saying, “I’m planning on retiring. I know that my kids don’t need everything that I have, but I don’t know where to start in that conversation with them.” And so everything in both those scenarios, it’s always about that next generation or just what is that magic number?

Bruce Sellery: You do a lot of work with family offices and many of our listeners, will have clients with millions and millions of dollars, but there are also many of our listeners who will have clients who have $20,000, $100,000. What do you think translates from the ultra high net worth world down to advisors serving those with lower asset levels?

Gena Rotstein: So, we believe that everyone can be a philanthropist. And when we sit down with our clients, we talk about the four Ts. Time, talent, treasures, and ties. These are the assets that everyone has, that they bring to their philanthropic conversation or the philanthropic table. And so whether you’re giving $1,000 or $1 million or $100 million, understanding where you are in your life cycle, your financial life cycle, and your philanthropic life cycle will determine what that asset base looks like. Whether you’ve got time, you’ve got a network to leverage, you have expertise that you can provide or you have those financial, the financial wherewithal to contribute.

Bruce Sellery: For financial advisors who aren’t dealing with ultra high net worth clients, they’ve already got a pretty big job and philanthropy can be seen as sort of outside the basic expectations of what they’re paid to do. Why would you argue that financial advisors should focus on philanthropy in working with their clients?

Gena Rotstein: So, we’re looking at an $8-trillion intergenerational wealth transfer in Canada, $52 trillion in the United States and of that $40 trillion in North America will end up with the next generation. We also know that 85% of people who inherit wealth either from a spouse or from their parents will leave their family advisors within six months. So, money’s on the move. And the reason why you want to start the philanthropy conversation now is because it’s a longer sales cycle for onboarding the next generation. And you also want to build that relationship with your … with your client’s spouse to make that transition more effective and smooth. So, really at the end of the day, it’s about retaining assets under management. But more importantly you’re … this is about building a relationship and philanthropy is an easy win in understanding and getting deep with your clients beyond just talking about their portfolio.

Bruce Sellery: You have been in this space for years and years and years and have been talking about a rigorous approach to philanthropy for years and years and years. Advisors are used to doing that. When they consider the merits of a particular stock investment, how do they carry over that learning, that insight, that process to allow them to help their clients assess charities?

Gena Rotstein: So for us, it’s not just about assessing charities, but really understanding the motivation of why those charities. So, you can’t really assess an organization without understanding the context and what success looks like to your individual clients. You wouldn’t compare a soccer association with a malaria organization. You might though ask the questions around like, “Why is this malaria issue important to you? Is it that you’ve been traveling in Africa and you had firsthand experience of volunteering somewhere where malaria was an issue?” Really getting into the why and then once you get into the why, you can actually start to assess what those charities are. But really at the end of the day, the best advisors would be calling firms like ours because that’s what we do. We understand how to assess and evaluate charitable KPIs and put them into the context and the industry in which they are being presented again, because you don’t want to compare a food bank locally with a medical aid organization internationally.

Bruce Sellery: I know this is oversimplifying it, but let’s say the context is super duper clear. What are the metrics that you would focus on? Because there was a time when we, I may perhaps oversimplified simply looking at the ratio of overhead to amount delivered in field to the actual service of the charity. Things have become more advanced since those days. What are the metrics that matter most to you?

Gena Rotstein: So, there are six metrics that we look at when evaluating organizations and we always again put this into the context of the risk profile of the donor. So, if the donor has a higher risk profile, we’ll find higher risk charities, but the six metrics that we look at are leadership governance, community engagement, and competitive analysis. So, who else is playing in the sandbox. Program implementation, volunteerism and HR, and then financials. And we put financials at the bottom purposefully because we don’t want organizations or funders to be leading with the overhead question. Because that doesn’t tell you anything. If you ask the question about overhead, all you’re going to find out is what they’re spending on overhead. You’re not going to actually know what it costs to solve the problem, what operational effectiveness and efficiencies look like within the organization. If they’re even qualified to deliver, all these other things that makes a good charity a great charity. So we do look at the financials, but we don’t lead with the financials.

Bruce Sellery: You talked about the four seasons of financial planning, which I love. The current model is kind of like holidays because everybody’s shaking their basket in December and then when you’re dead, you would argue that financial advisors should follow a calendar with a number of different activities that happen per quarter. Why do you advocate for this approach?

Gena Rotstein: Well, why would you leave the sale to the end of the year? That just doesn’t make sense. And so if you have a full year to be building a relationship and a rapport, recognizing that money is on the move right now and it’s the largest intergenerational wealth transfer that we’ve ever recorded in North American history, to leave it to the fourth quarter of the year when everybody’s in a panic just doesn’t make sense. And if you look at it from an educational perspective and actually follow the financial planning calendar from tax season to the legacy planning time, which is leave a legacy month is in may through to the summer holidays when everybody goes on tour or traveling and then into the school year and the Christmas season, you actually can be onboarding your clients at different points, providing them with tools and resources so that come the end of the year, they have a clear understanding of what’s going to happen and you can provide the right technical solution for deploying that capital.

Bruce Sellery: Three of those are super clear to me. Tax planning, legacy, holiday. Got it. Summer holidays though. What should a financial advisor be talking about with their client in the summer? I mean aside from when are the s’mores being served.

Gena Rotstein: Right? Yeah. So, first of all, how available are your clients to meet over the summer? Because if you run in, especially if you’ve got clients with young children running into the fall school season, when everybody’s in a mad panic and then all of a sudden they realize that they were supposed to get other stuff taken care of is just never good for anybody. But that aside, summer time is when families do their holidays for the most part. And what we’re seeing is this uptick in voluntourism. And so if you’ve got a client that wants to do international giving, if you’re Canadian, that’s very hard. The Canadian government doesn’t like it when people do charitable giving overseas for a bunch of reasons. So, as an advisor, you need to know what’s the technical framework that needs to be set up to allow for that to happen.

But then also if you have a client that wants to actually donate their time while they’re overseas, guiding them through what voluntourism looks like is really important because you don’t want them to have a negative ripple effect, right? They’ve gone over to build a house and all of a sudden as a result, they’ve taken a job away from somebody that’s in that community, so, there’s a ripple effect to your philanthropy. So, being mindful of what that looks like is critical. And a technical advisor can really help shape by asking some of those technical questions that might not even occur to somebody.

Bruce Sellery: Many advisors believe in philanthropy because it’s consistent with their values as human beings and many want to learn more about it because their clients believe in it. What would you say are the top two or three resources that financial advisors who want to learn more and do more in this area? What books should they read? What conference should they go to? How should they learn more?

Gena Rotstein: So, the number one book that I always reference is Start With Why by Simon Sinek. It’s when you look at why people give, it’s not about taxes. There was a study done in the States in 2007 and then again in 2014 and the numbers didn’t move. And what they found was that 85% of advisors said they talked to their clients about philanthropy, but only 15% of their clients heard that conversation. What their clients said they heard was a tax planning conversation. So, it really always goes back to the motivation, the why. So, that’s why I picked that book.

The second book is a new one that came out last year called Generation Impact and it’s about the influence that the next generation is having on the philanthropic sector, specifically the way that traditional philanthropy is not being activated in the same way as their parents and grandparents. And so how do you talk to that rising generation? And then the third book is actually a series by Jay Hughes. He is an estate lawyer in the States and he’s done a number of books on the cycle of giving, the role of the inheritor and he really is the guru and godfather on strategic philanthropy for family offices.

Bruce Sellery: Oh wow. Fascinating stuff. So much here Gena. Thanks for making time to talk to us.

Gena Rotstein: Thanks so much for the opportunity.

Bruce Sellery: Gena Rotstein, principal at Karma & Cents. She joined us to talk about philanthropy and the financial advisor. There’s what you learn in school and then there’s what you can only learn from experience. Prosperous practice is our effort to bring some of that hard earned experience directly to you.

Cynthia Kett: My name is Cynthia Kett. I focus on advice only financial planning for high net worth families. My tip is about building relationships. How it works is I encourage both spouses to get involved in family financial meetings right from the outset. One thing I learned that worked was spending time listening to and speaking to both spouses equally, using words and examples to which they can both relate greatly improves the working relationship. One thing I learned that didn’t work was speaking only to the lead financial spouse prior to accepting an engagement puts you at a significant disadvantage. It’s important to connect with both spouses because it will take both their efforts to make their financial strategies successful. Building trust with both spouses is particularly important when the family experiences a major life event such as death, separation, or divorce. The impact on my business has been significant. I’ve worked with many client families for more than a decade. Sometimes two. Sadly, one of the spouses may have passed away, but we still maintain a strong relationship with the surviving spouse.

Bruce Sellery: This is Prosper, the financial advisors podcast from Advisor’s Edge. We would love to hear your comments, questions, and topic ideas. You can connect with us on social media. Twitter is @advisorca, Facebook Advisor’s Edge magazine. LinkedIn is Advisor.ca or send an email to news.advisor@tc.tc. Take a second right now, literally right this very second, unless you’re driving, then you can park. Take a second and click that little subscribe button so you’ll receive the next episode of the Prosper podcast automatically and maybe give us a review. That’ll take more than a second, but we’d appreciate it anyway. Thanks for listening. Now go out and prosper.