Advisers uncover gold in ‘non-monied’ clients

Clarfeld Financial Advisors brings new clients into the fold by helping divorcees become financially savvy.

For most financial advisers, the perplexing concept of “non-monied” might be something to instinctively avoid. But at Clarfeld Financial Advisors, a focus on non-monied spouses has developed into a thriving niche category for the $7.3 billion advisory firm.

The target market includes recently or soon-to-be-divorced individuals who have limited financial expertise and are about to be saddled with full financial responsibilities.

“In most cases, we’re talking about a spouse who isn’t currently working and maybe hasn’t worked in years, doesn’t handle the household finances, and doesn’t have a strong knowledge of finances,” said Rob Varriano, managing director and partner at Clarfeld. “These are the kinds of clients who might need more hand-holding through the divorce process and after the divorce is finalized.”

Clarfeld, which started in 1981, first recognized the potential of non-monied divorcees in the early 1990s, when a lot of business started coming through referrals from divorce lawyers, and most of the clients were female.

But over the past half-dozen years, the business has developed into a more specialized part of the firm’s niche practice, Mr. Varriano said.

“It has definitely ratcheted up because of our platform, which includes tax planning, investments and personal financial planning,” he said.

Despite the awkward non-monied moniker, Mr. Varriano said the niche category is anything but, and it has been become an essential component of Clarfeld’s larger focus on high-net-worth clients.

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In many cases, the non-monied spouse will walk away from a divorce with several million dollars, plus an annual income in the form of alimony and child support.

The lump-sum assets, which sometimes come in the form of investment portfolios or real estate, along with any other settled income, is where the financial planning work comes into play.

“It’s all about the spouse that might not be able to replace capital,” Mr. Varriano said, underscoring the unique characteristics of this niche market.

Regardless of a client’s age or their circumstances, from a financial planning perspective the situation is comparable to that of a recently retired person, or a person who received a sudden financial windfall.

“We are preparing the client for a post-divorce lifestyle, and that lifestyle may be very different to them,” Mr. Varriano said. “Sometimes the settlement is enough and no one needs to think twice about it, but in some cases the client needs to adjust some parts of the post-divorce lifestyle to make it work.”

In terms of settlements, Clarfeld is often involved early on, even before the divorce is final, and will often advise a lump-sum payment as opposed to an annual payout when the assets are divided.

“We’ve found that what makes people feel more comfortable is the lump-sum payment, because that can’t be taken away or renegotiated in the future,” Mr. Varriano said. “For instance, what happens if the person making alimony payments loses his job?”

From a financial planning perspective, the settlement is important “because that’s everything you have to work off for the rest of that person’s life,” he said.

As a niche focus, Mr. Varriano said he will typically average two new non-monied spouse clients in a year. But the relationship is anything but temporary.

“My ultimate goal is to have a long-term relationship with the client,” he said.

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The long-term potential is a big part of the appeal of niche strategies, according to April Rudin, president and chief executive of The Rudin Group, a financial services marketing firm.

“Anything niche is really good, and the more you can narrow down any area of expertise the better,” she said. “And in situations like this, you’re not looking for quantity, you’re looking for quality of clients.”

Because he is dealing with clients who are suddenly forced to pay attention to finances and investments, Mr. Varriano said he sometimes finds clients favoring one of two extremes.

“They might continue to spend money even though they know they shouldn’t,” he said. “I’m not trying to make a client panic, but I might have to talk to them about bringing a $400,000 lifestyle down to a $300,000 lifestyle, because that might not happen right away for some people.”

Another challenge he sees is clients becoming so fearful of not having enough money that they become paralyzed and afraid to invest the money.

“When you don’t invest, you’re not able to build a portfolio that will support you for the rest of your life on an inflation-adjusted basis,” he said. “Both sides have to make adjustments after a divorce, but the client who isn’t working doesn’t have a choice, because unless they go back to work their money is fixed. In these settlements, they’re assuming the spouse isn’t just going to just sit on the money, and that’s often where the hand-holding begins.”