A new report from UBS explores the changing dynamics and financial needs of wealthy families, and how and why the wealth management sector should respond.

Family dynamics are changing across the wealth spectrum, with the rise of “modern” families being a burgeoning trend. But many high net worth investors feel that financial advice is still typically designed with only the “traditional” family in mind, according to UBS Wealth Management Americas' latest Investor Watch.

The report, which polled 2,715 wealthy investors and is called Beyond the Picket Fence, shows that modern families (which includes blended, same-sex and multi-generational families) are nearly as common as “traditional” ones, and advocates that the financial industry should be doing more to accommodate this.

“It's important for the financial industry to start addressing the complexities of modern families,” said Paula Polito, a client strategy officer at UBS Wealth Management Americas. “There is a real opportunity to respond to the rapidly and dramatically changing family dynamics in modern America.”

With that said, such efforts are underway at a number of firms. In 2013, for example, US Trust unveiled an integrated offering for the “modern wealthy American family” to address the complex and evolving needs of parents, children and extended family members.

The main elements of US Trust's Family Wealth Services offering include: Financial education for children and wealth management across multiple generations; dealing with the specialized needs of elderly family members; customized wealth plans focusing on the distinct needs of women - including those who are single, married, widowed and divorced; wealth planning for LGBT partners; creating a multi-generational legacy; and administrative support for family members and other individuals serving as a trustee or executor.

Blended, same-sex and multi-generational families

UBS' latest research shows that blended families (those with children from a prior relationship) represent 14 per cent of the high net worth and affluent investor population, and that these individuals experience greater financial and emotional challenges compared to traditional families. Correspondingly, over half (55 per cent) feel they lead more complicated personal lives compared to traditional families (48 per cent) - and even more so when it comes to finances.

UBS noted that creating a larger family is of course more expensive, though 44 per cent of those polled said they underestimated the cost of supporting more children. Adding to the financial challenges are the emotional strains felt by those parents taking on responsibility for children that are not biologically theirs, meaning they often have a tougher time when it comes to inheritance planning. Over two-thirds (67 per cent) of blended families don't know how they will divide their wealth, physical assets or business interests, compared to half of traditional familie, for example. They are also less likely to have open discussions about wealth transfer and are less confident that their eventual decisions will satisfy their heirs.

“It's important that wealth managers ask the right questions,” Sameer Aurora, head of client strategy at UBS Wealth Management Americas, told Family Wealth Report. “For example, when a client re-marries, advisors should ask about how much support the client will provide for children from a previous marriage and the spouse's previous marriage. These costs can be built into new or existing financial plans and give clients a better idea of what they are facing.”

Another area of focus in UBS' study relates to how the Supreme Court last month ruled that same-sex marriage bans at the state-level are unconstitutional in a landmark ruling after what have already been huge changes in recent years to laws around same-sex marriage in the US. Besides being a major victory for the LGBT community, the news was particularly relevant given the wealth management industry's widened focus on client segmentation and, for example, catering to the “modern American family”. Half of the same-sex couples polled by UBS feel, unsurprisingly, that this development will positively impact their life - particularly with health and retirement benefits. However, 60 per cent of same-sex couples feel that there is not enough financial guidance for families like theirs, it emerged.

“They continue to believe, more than traditional or blended families, that financial advice and support systems (e.g., Social Security, health and retirement benefits) are not constructed to support their type of family,” UBS said. Seventy-two per cent are actively seeking guidance to understand how the legalization of same-sex marriage affects their benefits, for example. “Same-sex couples are attempting to translate what the ruling really means for them, their benefits and their financial situation, making financial planning that much more critical,” said Aurora.

Meanwhile, more adult children and aging parents are sharing homes, challenging conventional lifestyles and adding pressure on loved ones to support them financially. UBS said its findings show that, for families with adult children still living at home, more than half worry about maintaining their current financial situation.

Aurora said it's “perfectly appropriate” to ask families about sensitive issues, so long as this is done in a sensitive way. “The main thing is for financial advisors to be clear about why they're asking personal questions and probing on family relationships: because it's the only way to make informed recommendations and achieve the client's goals,” he told this publication.

Wealth managers should also encourage clients to discuss their wills and estate plans with their heirs. “The wealth manager can perform a valuable service by facilitating those discussions, and helping to manage heirs' expectations,” Aurora said. “For example, some blended families have a big age difference between the spouses,” he continued. “The children from the first marriage may not realize how long it could be before they receive an inheritance, since many estate planning calculations are based on the age of the younger spouse. That needs to be communicated in order to minimize potential conflicts.”

In conclusion, modern families and traditional families have many of the same financial planning needs, but modern families face unique challenges, Aurora highlighted. "The key is not to have a totally separate offering for traditional and modern families but to take a tailored, planning-based approach to each."