How Advisors Can Help LGBTQ Clients With Planning

Because I focus on financial planning for the LGBTQ community, I often get the question, “what makes LGBTQ planning different?’”

Behind this question, there may be the thought that it has been almost six years since Obergefell v. Hodges made marriage equality the law of the land. Additionally, last summer the U.S. Supreme Court ruled that employers couldn’t discriminate against their LGBTQ employees. So, everyone is pretty much on equal footing, right? Not quite.

A 2020 National Opinion study by the Center for American Progress showed that more than 1 in 3 LGBTQ Americans faced discrimination of some kind in the past year, including more than 3 in 5 transgender Americans. To avoid the experience of discrimination, more than half of LGBTQ Americans report hiding a personal relationship, and about one fifth to one third have altered other aspects of their personal or work lives.

I’ve seen this fear play out with my clients in situations where they were afraid to take a job promotion because it involved moving to a state that isn’t very LGBTQ-friendly, or coming to me because they couldn’t fully be themselves with their previous advisor.

As advisors, I imagine we all want to create a space where our clients feel safe to share their whole life and have their specific needs identified and addressed. Ultimately, everyone wins by creating a mutually safe and beneficial relationship. To that end, I want to give insight into some of the unique characteristics of LGBTQ financial planning, as well as offer some tips to consider and mishaps to avoid when working with the LGBTQ community. I hope this can help you create a long-lasting relationship with your LGBTQ clients.

Here are some tips to consider:

1. Plan With Appreciation

I can’t stress this enough: the LGBTQ community deals with the fact that they are different on a daily basis. So instead of approaching the relationship as if they were just like your straight couples, appreciate the uniqueness of their situation and highlight how their planning is different. This also includes educating yourself on the LGBTQ experience and not relying on them to educate you. You can find great webinars and articles from XY Planning Network, the Financial Planning Association’s Pride Planners, or the National Association of Personal Financial Advisor’s (NAPFA) Diversity Committee.

Overall, you want to create a space that feels safe for them to be their authentic self and get to know them deeply. This can be expressed in a few ways:

• Appreciating the barriers that lead to job insecurity, less mobility, and helping them make decisions around staying in unwelcoming careers or companies for very long.
• Building portfolios that reflect their values, including LGBTQ-friendly mutual funds and ETFs like the Adasina Social Justice All Cap Global ETF JSTC, Vanguard’s Social Index Fund VFTAX, or the SPDR SSGA Gender Diversity Index ETF SHE.
• Digging into their money mindsets, especially around their financial perspective or their ability to build wealth. Granted, I think this is important for all clients, but especially for my LGBTQ clients who tend to have more emotional baggage around family and money. You can use tools like the Klontz Money Script inventory to really get a sense of what may be holding them back.

2. Understand the Nuances of Planning to Have a Family

Among my clients are several LGBTQ couples with children. And I’ve yet to have any of them say it was unexpected. In fact, often time they’ve planned for months or years in advance. I’ve become intimately familiar with the different methods of creating a family--whether it be adoption, fostering, or surrogacy. This includes learning about second-parent adoption and situations where both spouses are allowed to appear on the birth certificate.

Additionally, I’ve learned the different costs associated with these methods. They range widely, with fostering costing next to nothing and surrogacy costing $100,000-$200,000. I find digging into the nuances of the adoption credits, and why some medical expense may be deductible for a lesbian couple but not for a gay couple, especially fun.

3. Add Inclusive Aspects to Your Firm

Who do your clients see when they visit your website? Do they see people that look like them? Does the language on the website include spouses or same-sex couples? Can they identify with the examples on your website? The best way to ensure that clients and prospects understand that you have a welcoming firm is to show them. Even seemingly “small” actions like adding your pronouns to your Zoom name, asking their pronouns in your questionnaire, and using software that offers gender-neutral identification options can go a long way in providing comfort to your clients.

Some advisors come to me worried that they will mess up or say the wrong thing in trying to be inclusive. You probably will. We all make mistakes. But that doesn’t mean we shouldn’t try. It's okay to make a mistake and apologize for it. You have more leeway if you're open and honest about what you do and do not know, and come from a place of appreciation. And I promise you if you can pass the CFP or licensing exams, you can learn how to identify a client using they/them pronouns.

There are also some pitfalls to avoid.

4. Don’t Overlook the Importance of a Spending Plan

LGBTQ people tend to live in urban, high-cost areas. In addition to living in high-cost areas, more LGBTQ people than our heterosexual counterparts consider themselves spenders. That means that I spend a lot of time with my clients on their cash flow--taking an inventory of what’s coming in and what’s going out. Additionally, we create spending plans that allow them to establish some security and reserves, plan for what they want and need now, as well as what they want and need in the future.

We have to deal with navigating jumbo mortgage loans, saving for gender confirmation surgery, and facing the anxiety of all of those articles about not having X saved by time you’re 30, 40, or 50. Instead of worrying about society around them, we focus on building good habits that contribute to the life that they want to live.

5. Don’t Assume They Want to Marry

Marriage equality is the law of the land, but I have multiple couples that have chosen not to get married. Some just like the way things are, and others think getting married conforms to societal norms that they don't want to be a part of. For these couples, I make sure to highlight the 1,100-plus benefits that come along with being married. I also encourage them to create their own path. As long as they're being thoughtful and intentional about their decisions, I say, "Let's do that!"

From a technical statement point, it also means I need to understand the pitfalls of not being married when it comes to sharing bank accounts and splitting expenses, especially when there are vast differences in income. The splitting of expenses and giving money to one another has gift tax consequences and affects each of their tax returns. If they live as domestic partners in a community property state, that could also mean multiple tax returns. We also need to look at estate and insurance planning differently to ensure they’re able to take care of one another in the desired way if something unexpected were to happen. Being married, on the other hand, at least creates some safeguards.

6. Don’t Assume You Know the Person’s Experience

Lastly, don't make assumptions about the person just because you know they are LGBTQ. While we've highlighted many common experiences among the LGBTQ community, each person is different. It's better to ask for their perspective and understanding rather than assuming you know or understand. I made the mistake once of thinking a client was fired for being gay and took us down an unnecessary rabbit hole until he explained why he wasn't. While there are common experiences, you'll need to find out what makes each person tick.

Editors Note: This column is part three of our series on the intersection of financial advice and different cultures, historical backgrounds and identities. Morningstar Office clients can find more Morningstar DEI research and commentary here.

Brian Thompson is a financial advisor and the founder of Brian Thompson Financial LLC. As both a tax attorney and a Certified Financial Planner™, he provides comprehensive financial planning to LGBTQ+ entrepreneurs who run mission-driven businesses. He spent a decade defending small-business owners against the IRS as a tax attorney and decided to become more proactive rather than reactive when helping small businesses thrive.