Afew times a year, Jason Weybrecht of Spero-Smith Investment Advisers Inc. in Cleveland, Ohio, plays Monopoly with the children of one of his clients. It is really an excuse to start talking about money. “It’s important to our clients that their kids have a solid understanding of saving, spending, and planning for their future,” he explains. “We meet to discuss how stocks and bonds work, and the importance of budgeting.”
While spending an afternoon with children isn’t a typical advisor’s routine, Weybrecht is just one of many advisors following a new trend in family financial planning: taking a special interest in clients’ offspring. As Charles E. Foster, II, of Blankinship & Foster, a family wealth advisory firm in Del Mar, California, puts it, “Why would we only help our adult clients and not offer to help the people they love?”
In a different part of the country, Melissa Hammel is holding class for a small group of six-year-olds. Hammel, a partner with Hammel Financial Advisory Group, LLC, in Brentwood, Tennessee, spends two to three weeks each year teaching all of her clients’ children about money and how to manage it.
This shift in the financial planning industry toward including all family members in the planning process is something some advisors agree is a necessity for everyone involved. It’s important that children know how to manage and maintain their wealth so that they are able to take care of themselves as adults. Weybrecht says, “in many cases if you do not build a relationship with clients’ children, all of your work and planning will walk out the door once your client dies.”
Todd Black of Dogwood Capital Management, Inc., in Cumming, Georgia, believes wealth management is all about being the family advisor—with an emphasis on family. “It will be much more common to see family planning in the future than it was in the past, because our profession has evolved from a product-focused industry to a relationship-focused industry, at least as far as the fee-only movement is concerned,” he says.
When is it appropriate to bring money issues and clients’ children together? Wait until the child has a job and is earning money of his own, advises Black. “If they earn $500 in a summer working at McDonald’s or for Mom and Dad, they need to open their own Roth IRA and put $50 in it,” he says. “I point out to my clients that their child’s earned money is somehow worth more than the money Mom and Dad provide, and the life lesson is much more compelling.”
Foster believes the earlier kids get involved, the better. His approximate timeline for involvement:
• Ages 0-6: Set up small/moderate custodial account for education. For amounts larger than $5,000 - $10,000, open a 529 or an education IRA.
• 1-6: Frame a stock certificate, such as Disney, on the child’s bedroom wall. This can help bring about first discussions of owning part of a large company through investing.
• 4-6: Begin an allowance or payment for small chores around the house. The child can now practice spending money wisely.
• 5-8: Break the child’s income (allowance) into short- and long-term spending and savings, and into charitable giving categories.
• 6-12: Start simple investment decisions in companies the child recognizes. Increase the child’s allowance, but have him start paying for things he wants (not needs).
• 10-14: Discuss rise and fall of stocks, bonds, and the mutual funds that hold them. Begin risk-and-return explanations.
For Weybrecht, the 12-year-olds he works with have just begun to understand the stock market. Find a company the child likes and follow it, he suggests.
• 12-14: Start talking about what it takes to be independent and living on your own. Go over housing costs, job income, income after taxes, and so forth.
• 13-16: Increase allowance to pay and budget for almost all purchases.
• 12-17: Open a custodial IRA for the child, and match any taxable income the child contributes; agree that no funds will be withdrawn until retirement.
• 16-17: Open a checking account with the child’s money and credit card. Be sure the child understands that your client will pay the balance under specific pre-arranged terms.
Age-specific recommendations notwithstanding, there are some planners who take more of a “tough love” approach. Lou Stanasolovich, president of Legend Financial Advisors, Inc., in Pittsburgh, says that while he believes it is important for everyone to “be on the same page,” he allows some of his clients’ teens to invest in any stocks they wish. “We’re encouraging [the teens] to learn their own lessons,” he says—even losing their own shirts.
If good hard lessons are not your cup of tea, there are other alternatives to educating your “younger clients.” Susan Bradley founder of Money Camps Inc. (www.moneycamps.com) in Palm Beach Gardens, Florida, believes financial literacy is one of the essential life goals that is “easier to learn as a kid.” By incorporating personal investing and spending, goal setting and money management, Bradley says, “if you learn these ideas at a young age, life would be easier to get through.” For a complete list of financial camps, visit www.kidscamps.com/academics/business_finance.html.
To begin working with clients’ children, consult: the National Endowment for Financial Education (NEFE) at www.nefe.org; Liberty Funds, at www.younginvestor.com; Salomon Smith Barney’s Young Investors Network, at www. salomonsmithbarney.com/yin/home.htm; the Alliance for Investor Education, at www.investoreducation.org; the American Savings Education Council, at www.asec.org; and the Jump$tart Coalition for Personal Finance Literacy, at www.jumpstart.org. —Megan L. Fowler
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