Over the Rainbow: LGBT Couples Present an Opportunity for RIAs
Now that the U.S. Supreme Court has legalized gay marriage throughout the U.S., financial planning for same-sex couples will be easier.
This article was originally published October, 2015.
This past June, when the U.S. Supreme Court handed down its 5–4 ruling that same-sex couples have the constitutional right to marry, there was jubilation. Rainbow flags unfurled, and gay people once barred from legal matrimony raced to the courthouse for marriage licenses.
Now that the confetti has settled, things are also looking a bit clearer for registered investment advisers and their LGBT clients. The Supreme Court decision eliminates ambiguities over a married partner’s legal status in the 13 states that didn’t recognize such marriages. “Financial planning has gotten so much easier for same-sex couples now after the ruling,” says Bruce Hoffmeister, senior financial planner at $76 billion Wilmington Trust Corp. in Washington.
But that doesn’t give gay households an excuse to be complacent about wealth management. “A lot of couples think they don’t need to do planning anymore — and that’s dangerous,” warns Michael Pellman Rowland, portfolio management director with the Vector Group at Morgan Stanley in New York. If anything, as the first tax year since the SCOTUS ruling comes to a close, it’s time for RIAs to reach out to clients for a checkup.
Wealth managers have good reason to court the gay community. LGBT households in the U.S. appear to be more affluent than average, though hard data is lacking, given presumed underreporting resulting from concerns about possible discrimination. A 2013 study by investment giant Prudential Financial citing the 2011 U.S. Census found that the median LGBT household income was $61,500, versus $50,000 overall. In a 2012 Prudential-led poll of 1,041 LGBT people aged 25 to 68, the 19 percent of respondents in a gay male couple reported median income of $103,100.
The fact that less than half of gay couples in the U.S. are married further clouds the household income picture. A study published in 2014 by Spectrem, a suburban Chicago–based wealth management consulting firm, showed that among LGBT investors with at least $100,000 in investable assets, only 30 percent were married; 25 percent were living with a partner, 13 percent were in a legal domestic partnership, and 30 percent were single.
With changing social attitudes, more gay households will feel comfortable self-reporting, say wealth advisers. Also, compared with their baby boomer counterparts, gay Generation X and Millennial couples are more likely to have or plan to have children, according to the Prudential report. Therefore younger couples will probably have a greater need than boomers for advice on trusts and inheritance planning.
Another pot of gold at the end of the rainbow for RIAs: Gay clients tend to be loyal, referring others to their advisers via word of mouth. Having a solid stable of LGBT customers will act as a magnet to the rest of the community: 40 percent of respondents in the Spectrem study said that their financial adviser should have other LGBT clients.
After entering wealth management in June 2002, Vector’s Rowland called on some of his old neighbors and friends from his youth in Manhattan’s West Village, known for its gay community and as the home of the Stonewall riots, the 1969 event that catalyzed the gay rights movement in the U.S. Eventually, his gay clients began sending their friends his way. Now the LGBT community accounts for about half of his clientele.
From retirement to intergenerational wealth transfer, gay and straight wealth management clients share many of the same concerns. When it comes to federal regulation of matters like estate taxes and pension portability, married is married. For gay families, this new reality has cut back on paperwork: In states that didn’t recognize same-sex marriage, couples previously had to file separate tax returns for every state in which they held financial assets.
RIAs can provide targeted advice to LGBT couples on issues especially relevant to them, such as surrogacy and second-parent adoption, whereby people legally adopt their partner’s children. Inheritance battles have emerged in court in the 35 states that don’t recognize second-parent adoption. Although gay marriage is officially legal throughout the U.S., “as the case with [county clerk] Kim Davis in Kentucky shows, there’s a difference between having laws promulgated and having them enacted,” Rowland says.
In its June decision the Supreme Court ruled that the Equal Protection Clause of the 14th Amendment means that marriage freedom applies to same-sex couples, granting them the same access to financial privileges as their straight peers. But as long as some continue to disparage the so-called gay lifestyle, LGBT-controlled wealth will remain subject to dispute. The recent ruling gives gay couples a firmer legal base, but “for full equality we have a long way to go,” Rowland says.
Follow Anne Szustek on Twitter at @the59thStBridge.
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