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On Transitioning My Children into Young Fiduciary Clients

Posted by Duane Thompson on April 24, 2013

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My son turns 18 in August.  At that point he plans to sign an engagement letter with an independent financial planning firm in Texas, and with a personal advisor he’s never met, or at least doesn’t remember meeting as a child.  My daughter, 21, graduates from college in another month, and is also a fiduciary client, at least in a limited engagement.  Both inherited a very modest amount of shares in a family-owned business that was sold last November.  Big changes, as they say, are ‘a-coming.

The financial planner in question is mine as well, and with brokerage, RIA and insurance licenses, has a host of conflicts to manage.  However, I trust him implicitly with helping my kids begin their path through adult life by setting clear financial goals that most other young adults their age won’t think about doing until they are middle-aged, according to current industry research.   Hopefully the odds will be better 30 years from now in selecting a fiduciary advisor, but at this point Washington policymakers aren’t telling us much.

The position of trust and confidence that I place in my advisor, and in having him assist my children, didn’t come casually.  I have known my advisor for many years.  He stayed overnight once at my former home in Boulder, Colorado, when my daughter and son were little.  I went to his wedding and know his family as well.  As someone involved on the regulatory side of the business, I must confess that I am also very comfortable with his working with my children because I understand his business model, and how he avoids or manages any conflicts that arise in our own client relationship.  It is not just about being friends on which the foundation of trust and confidence is based.  In fact, over the years we have had literally dozens of hours of discussion over regulation of financial planners, the various licenses that they hold, including his own, the standards that attach to each, and the best way to avoid or manage conflicts associated with the many services provided by comprehensive financial planners.  And since I have been involved directly with various Texas securities and insurance regulatory matters over the years, I know those laws better than most other state’s requirements.  Yes, my financial planner will say he places his clients’ interests first, and no, like many other financial planners with multiple licenses he is not always legally required to act as a fiduciary.  But I believe him when he says so because my confidence and trust is built partly on the many years that I have known him  and again in part on my years of work involved in understanding fiduciary obligations and other rules that govern advisor conduct in general.

Despite my enthusiasm in wanting to teach my children over the years about basic money concepts, they were terribly bored with it as teens.  They still are.  However, the capital gains that Uncle Sam slapped on their share transactions, was quite a learning experience. Kind of like having the tax man pour ice-cold water on them.  I hadn’t thought about financial education techniques in those terms, but it sure worked.

There is an obvious age gap, not to mention a geographical one, complicating the fiduciary relationship since I and my kids live in Maryland and at a North Carolina campus, 1,400 miles away from the Texas financial planning firm.  My kids made it clear, though, that they prefer to answer quick questions mainly by texting, which helps bridge the geographical gap in a way.  As for age, because my planner is a sole practitioner in middle age, like myself, he is grooming a young planner to take over one day, yet another hallmark of a fiduciary best practice by starting succession planning way in advance of retirement.  If that works out, then both my children will have someone younger to work with eventually, and hopefully with whom they can relate, since communication skills involving recommendations and disclosure of conflicts is critical in a fiduciary relationship.

Part of the age difference includes other obstacles.  My planner declined to discuss his conversations with my daughter, since she is no longer a minor and an adult in her own right.  Again, I don’t mind, because as a fiduciary he must legally guard her privacy.  Perhaps she’ll give me a hall pass and let me converse from time to time with OUR mutual planner about her financial situation, but it will be her choice, not mine.  Indeed, we have different scopes of engagement, and certainly different goals, needs and priorities, even if we’re family.

As for my son, we decided to let implementation of the recommendations sit for several more months until he is 18 and can legally sign his own client agreement.

This is the beginning of a new journey in life for them, and I am excited that they will learn more about the connections between money and life goals than they realize at this point, and perhaps along the way, what it means to trust someone outside of the family, and how that trust is formed under the law, as well as through a personal relationship.

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