As same-sex marriage becomes law, financial planning needs explored


Although there is a growing financial planning market for lesbian, gay, bisexual and transgender (LGBT) Americans, many feel underserved by the financial services industry.

And as three states – Maine, Washington and Maryland – prepare for laws enacted in November allowing same-sex marriages, the market and need to serve that market moves front and center.

According to a recent Gallup survey, 3.4% of Americans identify as lesbian, gay, bisexual or transgender, and the latest U.S. Census figures show about 620,000 same-sex couples living together.

If California’s ban on same-sex marriage is overturned by the Supreme Court – which recently announced it will hear cases related to it – the market could open up more opportunities.

Maryland will allow marriages beginning Jan. 1, 2013; Maine on Dec. 29 of this year; and Washington permitted the unions on Dec. 5, bringing to nine the number of states to legalize marriage for same-sex couples. The District of Columbia also allows the marriages.

Meanwhile, the federal government only recognizes marriages between a man and woman, potentially leaving LGBT couples without the same protections as those afforded to straight marriages – and in need of an expert financial advisor. But according to a recent survey from Prudential on the LGBT financial experience, many feel underserved by financial services companies and less prepared than the general population to make wise financial decisions.

Financial Needs For a Niche Market
Median LGBT household income is $65,000 vs $50,000 for the average American household, Prudential found.

Of those surveyed, 88% have never been contacted by a financial service company, and many said financial institutions lack the expertise to address their complex financial concerns.

Joshua Hatfield Charles

Joshua Hatfield Charles

“There’s a whole niche market out there that people are not paying attention to,” said Joshua T. Hatfield Charles, a Rockville, Md., financial advisor who married his husband four years ago. Charles manages more than $100 million in assets with a high concentration of LGBT clients. “This is a new niche that people really need to be exploring.”

Kyle Young, a Short Hills, N.J.-based Wells Fargo financial advisor, started his LGBT practice about 10 years ago with his business partner, Steven Schmitt. The practice manages about $175 million in almost exclusively LGBT assets.

“It made sense to work in a community we are a part of, and to provide a service that, even today, is incredibly underserved,” said Young, who is gay.

Kyle Young

Kyle Young

And from a business standpoint, there is a huge potential with the LGBT community, Young said.

“That’s why firms are picking up on this,” he added.

 Major Firms Recognize Market
A growing number of financial planning firms have launched LGBT-specific divisions, including Wells Fargo, Northern Trust, Bank of America Merrill Lynch, Morgan Stanley Smith Barney and Marcum LLP. (Morgan Stanley recently launched a LGBT initiative for its planners; read the story here)

About two years ago, Wells Fargo partnered with the College for Financial Planning to create the Accredited Domestic Partnership Advisor (ADPA) program, which offers courses on the financial considerations of domestic partnership. Young said there are about 200 ADPA certified advisors nationwide; Wells Fargo employs about 150, more than any other firm in the country, said Erica S. Van Ross, company spokeswoman.

John McGowen, who heads the LGBT division at Northern Trust in Chicago, said that practice offers its advisors in-house training and certification. The division went national almost two years ago, after the realization that the market was underserved, he said.

“The industry is beginning to recognize…this is a market segment and there are specific needs, technical and otherwise, that this community has,” McGowen said. “A lot of times, our LGBT clients just don’t understand all the hurdles they really face. As we’ve been out there explaining them, they realize the value and benefit we really bring.”

One of the biggest challenges, he said, is the lack of federal recognition of same-sex marriage.

“All the benefits the federal government provides to married couples aren’t relevant,” McGowen said. “That truly creates the biggest financial planning hurdle.”

Other challenges include a general lack of understanding on the differences in estate planning, unanticipated tax consequences and life insurance.

According to the Prudential survey, a financial professional’s sensitivity to LGBT needs is paramount in selection of a financial services company, and 61% of those surveyed said their needs are different than the general population.

Retirement is a top concern; survey respondents are very concerned about the lack of Social Security or pension survivor benefits for same-sex couples. Tax treatment, benefit inequality and inheritance rules for same-sex couples closely follow as major issues.

About half of same-sex couples work with a financial advisor, and those who do feel more confident about their finances, the survey noted.

With legal issues and nuances in establishing same-sex financial arrangements, the need for professional assistance is imperative.

“One of the most common errors I find with initial evaluations is around life insurance,” Young said. “Almost every policy I’ve seen is inappropriately set up.”

He added, “The bottom line is that there is a growing need for this type of expertise.”

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