4 Patterns of Financial Decision Making for Couples

Ask any husband-and-wife team if they share in the financial decisions of their family business and they’ll probably say yes. But dig a little deeper, and you’ll find that their definition of ‘financial decisions’ varies greatly.

Special Article By Jacoline Loewen, Toronto, Canada

Men often view financial decisions as those pertaining to long-term planning, sale of business and insurance. Women, on the other hand, consider financial decisions as the management of daily expenses, accounts payable, employee benefits and payroll.

They also tend to differ when it comes to investing: risk tolerance, expected results from investing and financial priorities, which means emotions run high when money is discussed. In turn, these differences have a tendency to flow through to the family business.

As counsellors will attest, money can be a divisive issue in marriage; from the early days, over who is going to do the actual paying of bills, right through to decision making over investing and retirement planning. The pressure can magnify if the couple runs a business together.

Couples should make a point of having a ‘money conversation’ early on, and should explicitly communicate their financial hopes and expectations. In any relationship, making assumptions can lead to misunderstanding. Openly discussing risk tolerance and possible outcomes depending on the scenario will bring a better balance to the business too.

There are four main patterns of most financial decision making, which – for the family business couple especially – are important to recognize:

1. The man decides. Women gravitate towards predictable results, which may mean sacrificing higher rates of return. Men, on the other hand, tend to want to beat the market, despite the increased risk necessary to get heightened results.

When the man makes the decisions, he will often take the riskier decision with the hope of higher outcomes. This can stress the woman but she will not want to argue her position, which is why she will opt out of shared decision making. Female business owners, at the end of their family business career, often discuss how they would not have taken the higher risk investments made by their partner. Looking back, if there is success, it is easier to say the risk worked.

2. The woman decides. Financial decisions made exclusively by women make up a small percentage of couples. In these cases, the woman tends to be the primary bread winner. Interestingly enough, they pick up the men’s risk profile by liking more aggressive investments. They may be unhappy about having to lead the financial planning at the time, but on the plus side, they’re far less worried about running out of money once retired. These women also tend to turn to their financial expert to manage their finances and help make decisions about their investments.

3. Decisions are independent. LGBT couples are more likely than heterosexual couples to separate their financial planning and investment because of that important factor: differing risk tolerance. Despite being the same gender with the similar risk and outcome profiles, they see themselves as independent as compared to family business couples. The trick is to make sure to use a financial expert as a sounding board in order to balance the risk appetite. 

4. Decisions are shared. There are advantages having both parties to voice their concerns on a matter, but this might mean the ultimate decision results in a compromise of two conflicting opinions, which may not ultimately be the right one. There’s also the potential for more arguments if both parties need to be involved in every financial decision and do not understand the different risk profiles they each prefer.

Determine which partner is better at making particular types of financial decisions and then step back and get out of the way. This shouldn’t necessarily mean that the breadwinner makes all the decisions, and it doesn’t mean any one spouse makes all the decisions. It means that sometimes it’s better for the man or the woman to make a decision individually, sometimes it’s better for them to make shared decisions, and sometimes it’s better to make separate and independent decisions.

Billionaires - architects of wealth and legacy

There are times in history when it has been possible to take exraordinary wealth not seen for long stretches of a century. The majority of today's billionaires have made their wealth in the past 20 years. This has been called the 2nd Guilded Age, much like the beginning of the Industrial Revolution.
Leveling off is occurring now.
The characteristics of billionaires is the ability to take risk, to have the tenacity to keep going and the ability to scale up or grow the business. If they do not have the skill to grow the business, to be able to partner with someone who can grow their enterprise.
Legacy is important.
Over two thirds of billionaires are over 60.
Without clear and sensible governance, wealth can dilute rapidly. These wealthy individuals seek out wealth experts from the world's largest and longest run financial institutions. Planning and structuring are critical and it is a specialized expertise.
Some billionaires are setting up family offices which are like private equity organizations in how they run their investments. Again, these use the platforms of large global banks in order to achieve a truly diversified portfolio.
Philanthropy is very important
Over 100 billionaires have pledged half of their wealth to philanthropic causes. Again, true wealth management has a deep expertise in the philanthropy of their clients which can pass along the lessons to the next generation.

Jacoline Loewen, Toronto

For more information, contact Jacoline Loewen.
jacoline.loewen@ubs.com
Twitter @jacolineloewen

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Securities and Advisory services offered through  a Registered Investment Advisor.

Sustainable Investing - Jacoline Loewen

Jacoline Loewen with the UBS Bank team on Sustainable Investing.

UBS Bank team presenting Sustainable Investing.

For those with $2M to Invest

For those who are wondering why you need a Swiss bank to manage your wealth - here is an useful excerpt from Financial Review:

UBS manages more than $1.6 trillion of private client money globally. Advisers at the private bank also give strategic financial advice on structuring investments, philanthropy and establishing family trusts and self-managed superannuation funds.

STRATEGIC THINKING

Each month, a global team of more than 900 analysts, asset managers and investment bankers, led by UBS global chief investment officer Alex Friedman, work together to review the world environment, assess the short and mid-term outlook and make high-level calls on what asset classes, and in what proportion, clients should be advised to invest.

Part of the review process is devoted to bouncing ideas off the chief investment officers of major global fund managers, such as BlackRock, Pimco and Aberdeen Asset Management. Those businesses are key partners of UBS and their views and experience lend a different perspective that helps with decision-making. “Our view is that asset allocation decisions are critical for the long-term performance of your portfolio," Chisholm says.

“First we have a robust investment process, to define broad asset allocation, and then we modify it for local conditions in each country. For each asset class we recommend investments or securities for the client."

Investment suggestions are based on research by analysts based around the world, as well as in Australia. Chisholm says local knowledge on a wide variety of global markets is a key part of the bank’s offer. Having an internal team that conducts all the research means advisers are confident they can vouch for its quality, he adds.

Research covers international stocks, bonds, foreign exchange and other asset classes. “We can offer our clients deposits or loans in up to 16 currencies around the world," Chisholm says.

“That’s a huge advantage in this environment, where you may want to invest internationally in certain securities or markets but if you can’t manage your foreign exchange position at the same time you may be exposed to risks you don’t want."

Clients are sometimes invited to speak directly to the research experts or participate in global and regional forums. The private bank offers its clients access to one-off investments, such as pre-initial public offerings and whole commercial properties sourced from the investment bank and other wealthy clients who wish to sell.

In Australia, UBS can help some investors buy debt securities, such as corporate bonds, in parcels of $100,000, which Chisholm says few other local wealth managers can offer.

LIMITED APPEAL

The service is upmarket and won’t appeal to everyone. It targets people who have more than $1 million to invest. Generally, below that level, investors are more likely to be interested in domestic equities and cash.

Managing the expectations of clients of wealth managers

Clients know it all, and want instant satisfaction. 

With the Web putting information at everyone’s fingertips in an instant, advisers face a lot of know-it-all clients. Many clients feel their Internet research makes them more knowledgeable than the advisors are.

Many clients also want instant gratification. Jacoline Loewen says, “We need to recognize this phenomenon and try to set realistic expectations for our clients…regarding the process, timing, potential complications, fees and likely results.”

Jacoline Loewen
LinkedIn profile for Jacoline Loewen