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Adviser Workshop: How to advise clients with second families

Adviser Workshop: How to advise clients with second families

Paul Beasley (pictured), Elaine Gwinnett and Anna Sofat share their insights on advising clients with two families.

Paul Beasley

Managing director, Richmond House Group

I have a couple of clients who are hitting retirement and have two families, so we need to work out how to deal with their affairs.

There are particular issues with how to structure a will. Sometimes it’s a case of identifying who has brought the most into the second relationship and finding out if that needs to go to their original children or should be split equally with their second family.

Providing for stepchildren

Clients with a second family tend to bring out diplomatic problems rather than financial ones. Advisers have to tread carefully. I have dealt with cases in which one partner is taking on a stepchild in the new relationship and you have to be diplomatic about school or university fees, as one party may not want to take on the other party’s children financially.

We use a lot of cashflow modelling, which can help explain situations and demonstrate to them that they have more than sufficient income and assets to support the two families and do the same for their stepchildren as they do with their children. I think cashflow modelling is becoming more prevalent in these scenarios.

We encourage clients with older children to be open about their financial affairs because this can help to avoid challenges to their wills and conflicts when they die.

We’ve had situations in which some children are involved in the family business but stepchildren are not. The challenge is how to square that so you leave the bulk of the business to the children running it and decide whether to compensate the stepchildren with other assets. It can open a real can of worms.

Elaine Gwinnett

DIrector, Forty One Consulting

When you’re giving advice to clients with young children in their two families, it’s important to concentrate on the issue of protection and ensure the children could manage if they lost a parent or step-parent.

I go through an expenditures sheet with clients because budgeting is important for those who will go from providing for one family to providing for two.

Focusing on income and expenditure

We focus on what everything is costing them. You have to look at the client’s income and disposable
income and make sure they can afford to provide for both families. It is expensive to run two households,
so what do they need to reduce their expenditure?

As each client’s situation is different, I have to find out what they want to achieve.

I deal with clients in their 50s, and the focus is on will writing, trying to establish with both parties where they want their estate to go.

It can be awkward when a wife says she doesn’t mind her new husband taking from her pension but she doesn’t want her money to go to his other family when she dies, she wants it to go to her children.

Some clients don’t necessarily want their spouse to know how they write their will.

You can have a situation where one client has three children and their spouse has one. The first client might think the other’s child is a bit of a waster. They don’t want to work hard for their money, only for this child to waste it, especially if they have their own children to leave it to.

Anna Sofat

Director, Addidi Wealth Management

We have a few clients with second families and it affects quite a lot of their financial planning needs, especially relating to paying maintenance costs or specific
costs for children, such as school fees.

I have a client who is paying large amounts of school fees for the children in his second family, and his ability to fund his own pension is really impacted. In some way he is looking at his partner’s financial security and is carrying on living in the manner he was previously used to and, because he’s in his 50s, he doesn’t have time to build up his own retirement fund.

You can achieve that balance between keeping your own lifestyle and paying additional costs for a second family by making a few compromises.

However, there can be a huge psychological barrier to saving because clients can think their ex-spouse might come back and make a claim.

Adjusting standards of living

Setting up a new family has an impact on a client’s outlook on life and finances. You need to deal with that right at the beginning.

It is important for clients to adjust their standard of living according to their means. A client may have had quite a decent standard of living with their first family, but the second family might not have the same level of income and therefore they may need to make changes to their budgeting and living costs.

It is important to empathise with the situation but you have to retain a neutral position.

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