Questions to Ask When Working With a Relative

The other day a client of mine told me that she’s chosen to have her will and testament written by her uncle who is an insurance broker. “I trust him, Sara, he’s known me my whole life,” she explained to me. I’m sure he’s great at helping pick insurance policies - but does that mean he has expert knowledge of estate planning?

Not so certain...Working with a relative has benefits for sure, and is a common way for many people to get financial advice. But from what I’ve seen, it’s not always done in a way that results in the best outcomes.

If you are getting financial advice from a relative, here six questions to ask yourself.

  • Permanence. If I ever made a financial decision for a relative of mine that he or she ended up not being happy with, can I cope with how awkward will every major holiday will be for the rest of my life?
  • Possible lack of fit. As cited in the example above (using an uncle who is an insurance broker to write a will), sometimes we feel comfortable with people just because we know them, but in reality there are more qualified people available for the job at hand. You should ask yourself, “If Bob weren’t my brother-in-law, would I still hire him to do this?”
  • Confidentiality. This risk factor is best illustrated by an example. Let’s say that I am talk to my sister and her husband about life insurance. During the process my sister becomes aware of a cocaine habit. Now wouldn't you say that I stand in the middle of a big mess? Ask yourself, “Is there any information about me that I wouldn’t be comfortable with this relative knowing.”
  • Politics/Lack of Alignment. When this gets ugly, it gets real ugly. A few weeks ago, I met with a woman who recently had gotten married. She was seeking life insurance for her and her husband, and decided to work with her brother. She described an awkward conversation that she had with her in-laws who disagreed with her decision to purchase a policy that they felt was unnecessarily expensive. So now she’s stuck in the middle. She doesn’t want to offend her brother by intimating that he’s trying to take advantage of her. But imagine what her in-laws are going to think if she buys it. It’s a family feud waiting to happen. To avoid this, ask yourself, “What are the true motivates of all parties who have an influence over this decision, and how bad could the conflict get if they clash?”
  • You get what you pay for. Sometimes working with a relative can mean reduced or no fees. Many people would never dream of charging a relative for financial services. As a result, you’d be more inclined to pay them less attention than you would pay to a fee paying client, or maybe not feel as subconsciously motivated to give your relatives 100% all the time. Before agreeing to a no fee engagement with a relative, ask yourself, “If Bob were charging me for this, would I still hire him, or would I look for someone else better?”
  • Lack of process. A relative may be more inclined to skip steps, and the assumptions you make might not always be correct. I once spoke with a man who was managing investments for his entire family, although he wasn’t a professional advisor and didn’t really have the right credentials. When I asked him if he filled out a risk questionnaire as part of each portfolio’s annual review, he didn’t even know what I was talking about. Before you agree to work together, compare the breadth of service your relative is willing to provide against the industry standard.