Your retired client requests a greater monthly portfolio withdrawal to help her adult children weather the pandemic, but the withdrawal would negatively affect her financial plan. What do you do?
Financial advisor with Edward Jones in Bayfield, Ont.
I’d ask the client: What’s changed? Is the need short or long term? We would need to look at the implications for the client’s long-term retirement strategy. What’s the size of the financial gap? What are the children’s circumstances and incomes?
I’d acknowledge the client’s feelings and intentions regarding her children’s well-being, asking her to tell me about her conversations with them and her concerns.
Next, I’d help the client understand the implications of a greater portfolio withdrawal, such as increased taxable income and capital gains, and how the withdrawal would affect her retirement strategy. She may have to reprioritize her goals or cut discretionary spending.
Another consideration is how she’d manage a potential financial shortfall of her own. She must understand how the withdrawal will exacerbate risks such as low interest rates and market volatility, and thus affect the portfolio’s long-term sustainability. Inflation, potential tax increases and her age are other factors that affect the portfolio.
I’d also ask her to consider how the withdrawal could affect her relationship with each child.
Instead of the withdrawal, the client could consider options such as reducing her spending, borrowing in the short term or offering in-kind services to her children such as child care for her grandchildren.
The children may also have options, and I’d ask the client what she thinks those options are. I’d offer my services to the children — they may not have considered refinancing their mortgages or adjusting spending.
If the client decides on a withdrawal that affects her plan, I’d make sure her safety net — all assets including cash, life insurance cash values and home equity — can protect her.
President at A. Jones Wealth and Estate Planning in Barrie, Ont.
This scenario requires a heart-to-heart client conversation. I’d acknowledge the client’s desire to help her children during these difficult times. I’d also show her what her portfolio currently provides and how her income and lifestyle would be affected by a larger withdrawal.
To potentially accommodate the withdrawal, I’d discuss with her the lifestyle sacrifices she could make, reminding her of typical spending patterns such as annual trips. How does she feel about forgoing the trip? Reflecting on lifestyle helps the client identify where to make sacrifices and is more meaningful than knowing the dollar amount of lost cash flow.
I’d also help her consider whether the money is a gift or a loan. If it’s a loan, I would discuss this transparently with the client and children in a family meeting, explaining how the loan affects the client and establishing the children’s repayment terms. The discussion would provide clarity about the loan and may result in the children deciding they don’t want the money. If the client decides to extend the loan, I’d advise her to keep a record of the children’s repayments.
If I were concerned that the children were taking advantage of the client for their own gain, I’d discuss that with the client. In a previous situation when I suspected elder abuse, I consulted with the client’s lawyer to verify that the client understood her actions.
It’s also important to document all client conversations and outcomes, not just those related to transactions.
To contribute your own ethical dilemmas or conduct quandaries, please email Michelle Schriver at firstname.lastname@example.org.