Separate clients if they disagree on investing

The Expert

Sucheta Rajagopal, LL.B, CIM, FCSI, CFP Investment Advisor & Associate Portfolio Manager, Private Client Group, Hampton Securities, Toronto

The Client

• Jerry and Judy, a couple in their 50s with grown children.
• Their ideas about investing are at opposite ends of the risk spectrum.
• Judy likes to trade and is very risk-oriented; Jerry’s conservative and prefers bonds.

Says Rajagopal, “Judy’s happy if I say ‘Let’s buy Kinross today at 15 and we’ll sell at 17.’ She has more stocks [in her portfolio]. She’s got some blue chips, but has a much higher proportion of smaller caps.” Jerry prefers the buy-and-hold approach with his blue-chip stocks. “He loves [that] these are stocks you can pass on to your children and grandchildren.”

Is a prenup necessary?

Some clients may think a prenuptial agreement is the best way to handle differing net worths and money attitudes. Maybe so with large disparities, but Hampton Securities advisor Sucheta Rajagopal has seen the consequences of hastily proffering such a document.

One of her clients was going to move in with his partner, who was significantly less wealthy. He went to his lawyer, drew up a prenup, and then presented it as a fait accompli.

“His partner hit the roof and the relationship ended right there,” says Rajagopal. “[Instead,] he should have said, ‘Let’s go to a lawyer together and see what the ramifications are.’ ”

Better still, she says, is recommending coupled clients have a frank discussion about money before making any commitments. “If you can’t raise those issues before you get married, it doesn’t bode well for the relationship,” Rajagopal says.

She’s careful not to offend clients, however, who think their relationship will beat the odds. So rather than raising the topic via gloomy divorce statistics, Rajagopal starts conversations with couples about budgeting, their spending and saving philosophies, and hidden debt. “Often, they end up seeing it themselves” if they’re not a financial fit, she says.

the solution

Rajagopal has always treated Jerry and Judy as separate clients, with separate accounts. “They came to me together, but when we started discussing risk tolerance,” they revealed their divergent points of view.

Rajagopal calls them separately. “I treat them as if they weren’t married. It’s not that I don’t think they will talk to each other; it’s that I think their reactions might be different. I need to get those reactions separately, because that will impact the account.”

The couple is financially comfortable, which helps make their unusual advice situation work. They do make some financial decisions together, such as how much to contribute to their RRSPs, save and set aside for things like home renovations. “They don’t run their bank accounts separately,” says Rajagopal, but have no joint investment accounts, either.

the risks

“If these clients aren’t talking to each other and the one taking more risk is losing money, you might have an issue. These guys have a solid marriage and they’ve been with me for 10 years, so they’re both aware of their [financial] situation,” says Rajagopal.

Client Acceptance

Rajagopal has two other sets of clients with conflicting risk tolerances who prefer separate accounts. Much more challenging are those whose spouses have different attitudes towards money management. In one case, a female client who’s always been a good saver entered a relationship with a spender. Result—a couple in debt. The husband isn’t her client.

“He ran up a chunk of debt without her knowing. So when they started to think about retirement, which she wants to do in a year, and he laid everything out, it was a big shock.”

At her client’s request, Rajagopal is meeting with the husband and attempting to get him to commit to paying off the debt by a certain date. “She feels he will listen to me, while he dismisses her concerns as [too] emotional,” she says. “But you can’t antagonize anyone or they’ll stop listening to you. So it becomes my role to find a compromise—I end up being a marriage counsellor.”