According to the U.S. Census, there are nearly 7 million unwed couples living together in the United States. These couples are not limited to younger people trying out a relationship before tying the knot, but also of two growing demographics that often have unique and unmet financial planning needs. The first includes an increasing number of older Americans — individuals with a significant amount of assets. The second group comprises a majority of lesbian, gay, bisexual and transgendered couples.
The lack of legal recognition, in many cases on both the state and federal levels, faced by LGBT couples especially, complicates planning. See: Christopher Street Financial’s president becomes the 'Talk of the Town’.
Baby boomers — whether never married, divorced or widowed, who choose companionship but prefer not to marry or remarry because of possible reduction in Social Security benefits or survivor pensions, or unwanted complexities with estate planning — also have unique planning needs. See: Why relying too heavily on a divorce attorney can be a bad financial planning move by clients.
For advisors who understand the specialized financial planning issues of these demographics, there is a growing opportunity.
Here are five ways advisors can serve this untapped market:
1. Be sensitive to the unique circumstances or challenges faced by your clients
As an advisor, you can add value simply by understanding the sensitive issues — legal, emotional, and social — that may cause unmarried partners to feel alienated or discriminated against. You should be prepared to address these issues head on.
During the planning process, you will want to ask about family dynamics, gender identification, health status, financial roles and responsibilities in the household, and, in the case of LGBT couples, whether the partners are “out” in their community or with their family. Dancing around these issues could lead to clients not being forthcoming, missed planning opportunities or inappropriate recommendations. Be mindful of your terminology: referring to someone’s life partner or spouse equivalent as a “roommate” or “special friend” can quickly sour a client relationship by appearing unaccepting or judgmental.
One of my clients works in a high-level government position where he maintains a top-security clearance with thousands of people reporting to him. Due to potential repercussions at work and his desire to keep his sexual orientation hidden from his family, the client faced significant financial planning challenges. He could not own his home with his life partner, nor could he maintain any type of joint accounts. His prior advisor simply instructed him to keep all assets separate and use an online estate document service to draft a will that left everything to his “roommate.” This left the client and his partner in a precarious position, and he turned to my firm to help ensure that his wishes were more adequately addressed. See: Advisor spotlight: How a former JPMorgan bond saleswoman transformed an iconic advisory into a business.
We developed strategies to set up and retitle his home, assets and beneficiary designations to a revocable living trust. This allowed for protection of the couple’s residence in case my client predeceased his partner, while giving him an opportunity to discreetly have his partner as a beneficiary of his retirement accounts. Additionally, we had proper powers of attorney executed, conducted a full insurance review to ensure that his partner was fully protected and followed up with their property-and-casualty insurance to ensure the household items of both the client’s and his partner were protected. See: One killer Roth conversion strategy in seeking a single-digit tax return.
2. Be your clients’ quarterback.
As a financial professional, join your clients for meetings with their tax professionals or estate planning attorneys. Your goal is to assist with the process in the hopes of identifying potential challenges and more effectively coordinating comprehensive planning. When it comes to this type of coordinated effort, having a CFP designation can give you an edge with clients. While nothing replaces years of experience, Certified Financial Planner Board of Standards registered programs and continuing-education courses specifically focus on meeting client’s financial goals on a macro level while working with other professionals to provide the necessary structure and documents to protect the client’s wishes or allow for additional tax benefits.
By being prepared and engaged in this way, you can keep conversations focused on clients’ specific needs and provide greater assurance that your clients’ goals will be met. As the advisor, fully aware of the clients’ special circumstances, you can challenge recommendations made by other professionals that do not take the clients’ needs or situation into account. For example, without a true appreciation for the couple’s dynamic, a tax professional might recommend a strategy that offers great flexibility for future deductions but might create an unexpected gift tax, liability issue or unexpected inheritance or estate tax consequence.
I work with an unwed couple with quite disparate income levels who preferred to live together in the home owned by the lower wage earner. In an effort to provide better tax benefits to the couple, their tax professional instructed them to retitle the home in both names in hopes that there would be a greater tax deduction by the higher wage earner. Knowing their overall situation, I was able to point out that the house was originally inherited mortgage-free by the lower wage earner and the retitling would result in substantial gift taxes.
While the tax professional who suggested that my clients retitle their home was an extremely competent individual, he was not in a position to understand the clients’ complete financial situation. As advisors, we can add significant value by coordinating the work of other professionals to ensure that clients’ long-term wishes are satisfied.
Engaging with a client’s other financial professionals can also help prepare you for future challenges faced by other unwed clients. In my own practice, I have benefited from working with other professionals to address specific estate-planning challenges. When I began advising clients during the probate process, certain estate issues led me to use vehicles — such as RLTs, beneficiary designations and transfers on death — that would bypass probate. However, after meeting with clients’ estate-planning professionals, I learned that such vehicles could create their own set of challenges if money or assets weren’t set aside to cover the estate administrative expenses. Thanks to proactive coordination, my attempt to protect my clients’ assets from challenge didn’t create larger issues down the road.
3. Get involved with organizations that focus on issues or challenges for the unwed
Organizations that could be a good starting point might include elder law, LGBT Chamber of Commerce and diversity committees for private corporations or planning groups. They can provide education on important issues and foster relationships with community leaders.
Through working with organizations in the LGBT community, I have met people from all walks of life who understand the community. I have been able to leverage these relationships as resources for my clients. For example, a couple wanted to purchase a million= dollar home, but their realtor kept showing them homes that would be suitable for “roommates.” I set them up with a Realtor who could meet their requirements, a mortgage broker who could easily work through their finances and a title attorney who understood the goals of their relationship and could provide an appropriate title. I also worked with a property-and-casualty agent who ensured that they have the equal and appropriate protection that would otherwise come automatically with marriage.
4. Expand the scope of your planning into areas that you don’t necessarily manage
While your goal initially might be to help your clients expand their asset base, you are also responsible for helping them mitigate undue risk. Teaming with a property-and-casualty agent might help clients save some money by making their home or auto insurance more efficient with a review of deductibles and potentially strengthen their security by adding a needed umbrella liability policy. Also, unwed couples are not afforded the automatic protections that married couples are, thus additional policies or structures may be needed to provide appropriate protection. See: The ABCs of doing due diligence on fixed income annuities.
One of my clients bought his house three years prior to meeting his life partner and starting their partnership. Since the house was in his name and his partner was not a related person, the non-owner partner didn’t have coverage for his personal belongings in the house. Through a comprehensive review of their protection, we learned that a renters’ policy was necessary in order to provide the needed coverage for the non-owning partner.
5. Develop a study group
Learning never stops — be proactive and form a group of professionals such as estate attorneys, tax experts, insurance specialists and others who deal with the unwed community and discuss each other’s current client situations in a forum that facilitates learning from others’ strategies and tactics for handling the unique issues of these clients. This will provide great education for each attendee and potentially foster future referrals within this community.
I am on the board of directors for Pride Planners, a group that works to provide educational opportunities and marketing information for the LGBT community. I had the opportunity to lead a study group of attorneys, certified public accountants and financial advisors focused on this population on different planning strategies needed to protect clients on the state and federal levels. During the session, I gained a better appreciation of how each professional works with this community and was able to develop working relationships with additional specialists in the field.
The number of unwed couples who need sound, comprehensive financial advice is growing fast. If you take the time to understand the unique financial challenges of this demographic, you and your (future) clients will benefit from your efforts.
J.T. Hatfield Charles, CFP®, ChFC®, CLU®, ADPASM, CEP®, CLTC, is a CFP Board ambassador and vice president of SPC Financial Inc., an independent SEC-registered investment advisory firm serving the Washington, D.C.. area for more than four decades. J.T. focuses on creating customized financial plans for members of a committed life partnership. In addition to his work with clients, J.T. provides continuing-education presentations on live-in relationships, same-sex marriages and civil unions to CPAs, attorneys and other financial professionals across the country. He also serves on the board of directors for PridePlanners, an organization that provides biannual national conferences focusing on the financial, tax, insurance and estate-planning needs of gay, lesbian and other unmarried couples.