Reaching out to family members is a common strategy for advisors just starting in the business. Yet many say relatives can be tough customers. A close relationship by blood or marriage is a “good way to get your foot in the door, but it’s not a basis for continuing to work with somebody,” says David Schneider, principal of Schneider Wealth Strategies in New York. To make sure the personal connection doesn’t short-circuit the professional one, he says, advisors must learn to treat family members just like anyone else when it comes to their financial well-being.
Schneider, whose firm has AUM of about $200 million, says he has advised more than a dozen relatives over the years; some of them were among his first clients. On the positive side, there’s usually a certain degree of mutual trust from the beginning. The downside is that familiarity can lead advisors to cut corners with their onboarding processes — potentially winding up with a bad mismatch.
“You have to put [relatives] through the same educational process and vetting process as you put someone who’s coming in off the street,” Schneider explains. “You have to make sure they’re actually on board with you, or it can be a disaster.” In fact, clashes over investment styles can become magnified when advisor and client are related, he says.
Fees can become an awkward issue as well. Relatives frequently look for a “family discount,” and advisors will often give one. Some limit such deals to, say, the first year. And most advisors say working with relatives for free is a bad idea. It’s a poor way to broadcast that your services are valuable — a message you hope your cousins and siblings will carry outside the family.
Setting boundaries is even more important with family members than with other clients. Andrew Tupler of Tupler Financial in Bridgewater, N.J., recalls relatives approaching him at religious ceremonies and weddings to chat about their portfolios. It can feel rude to tell a respected uncle, for example, that you’d rather not talk shop over Sunday dinner — but if you don’t tell him, he might take advantage of your good nature.
Tupler, whose firm manages $185 million, made it a point not to prospect among family members early in his career, lest they feel pressured or uncomfortable. “I never wanted to put any strain on any of those relationships,” he says. As he became more established, he adds, relatives came to him. “In a lot of cases, they [also] became more established — and they had a greater need as time went on.”
Yet some planners avoid working with relatives altogether. “If anything went wrong, whether real or perceived, I wouldn’t want that to hurt my relationship with family members,” says Daniel Lash of VLP Financial Advisors in Vienna, Va. He has made just one exception: His parents were two of his earliest customers. But Lash, whose firm has $420 million in AUM, refers other relatives to colleagues — and he finds family members appreciate that approach. “They’re telling financial advisors things they would not tell their closest friends or relatives,” Lash says. “Sometimes it’s best that the person isn’t someone so close to them.”
If you do decide to manage a close relative’s money, make sure the relationship is consensual. In 1998, advisor Vickie Adams of San Pedro, Calif., sold $700 worth of her young son’s savings bonds and invested the proceeds in a moderate growth equity fund, losing $20 dollars at the end of the quarter. He was livid. After weeks of trying to explain suitability and time horizons to a 10-year-old, Adams moved the money back into savings bonds.
When the market crashed in 2000, she was glad she had. “There wasn’t a day that went by when I wasn’t grateful I didn’t have to explain a prolonged downturn to him while I drove him to elementary school,” says Adams, whose firm has roughly $100 million in AUM. But the damage was done. To this day, her son — now well into his 20s — insists the stock market is “just like Vegas” and, as far as his mother knows, keeps all his money in savings bonds.