News Flash! Spouses don’t agree on everything.
Actually, the marriage license has little to do with this. Get any two people together and it is likely there are significant differences of opinion about many important topics. That’s life and its normal.
With money being an important topic, it also poses some challenges to financial planners.
On paper (or on screen), most financial planning software presents numbers as though the couple agrees on the goals. In many cases, this is fine because the couple has negotiated between themselves. Ideally this happens with the help of their financial planner.
The planner can help identify and quantify the trade-offs and the clients can decide how to balance them. “If you want to pay cash so Junior can come out of college with no debt from an Ivy League school, you can be confident your retirement income will be at least $X/month. If he goes to an instate public school, $Y/month is more likely.” It is up to them to decide if the difference between X and Y is what they want and make choices accordingly.
Those types of negotiations seem to trouble far fewer couples than figuring out what to do when the risk tolerance of each person is wildly different.
Most agree that assessing risk tolerance is important, but few seem to agree on how to do it. The quality of risk tolerance assessment tools varies widely.
A study by Plan Plus conducted for the Ontario Securities Commission of Canada, “A Review of Risk Profiling Practices” found pervasive issues with the questions that were asked such as too few questions, confusing and poorly worded questions, and arbitrary or bad scoring models. Some didn’t even ask about basic items like age, income, net worth, investment knowledge, experience or goals. They characterized three of the 36 questionnaires examined as ”dangerous.”
Even if you use a valid assessment tool, there is great debate about what to do with the results. The assessment says “Jack” has a moderate risk tolerance, but he is scared to death to be in equities. His risk perception does not jibe with his tolerance.
“Jill’s assessment says she is aggressive and she wants to “go for it” but their situation makes you uncomfortable about being in an equity heavy portfolio because a nasty bear market could put her goals in jeopardy. Her risk capacity conflicts with her tolerance.