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Industry Spotlight > Women in Wealth

Divorce Looks Like Forced Early Retirement for Many Wealthy Women, Advisor Says

By John Manganaro

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What You Need to Know

  • While divorce can bring a financial windfall for some women, understanding what to do with the money can be a big challenge, says planning expert Michelle Smith.
  • For high-net-worth women who were not the primary earner pre-divorce, Smith says, the planning needs often resemble those of pre-retirees.
  • Smith's reach is amplified by her firm's fee-based Wife2CFO financial literacy platform, which will soon be complemented by a platform for young people.

The financial outlook of divorced high-net worth women can present one of the most complex planning challenges an advisor can face, especially in cases where the client was not the primary earner prior to their divorce. This is also one of the areas where older male advisors (i.e., the majority of the industry) tend to have serious blind spots.

This is one key insight shared with ThinkAdvisor by Michelle Smith, the CEO of Source Financial Advisors and a 30-year industry veteran with an unusual background in the world of financial planning.

As Smith explained during a recent interview, her mother was one of the first and only female brokers working for Merrill Lynch back in the 1970s. Smith says her mother, Corrine Smith, was “truly a pioneering woman in the field,” and that she counts herself lucky to have had the chance first to intern for her and then to work together in an independent practice.

As recounted in the Q&A interview presented below, Smith herself has spent her own career dedicated to the financial services industry, including the past 20 years advocating for “all things inclusion and empowerment.”

As CEO of Source Financial Advisors, Smith helps clients navigate complex, sensitive and critical financial topics and issues, especially those affecting divorced high-net worth women.

To this end, in addition to being a licensed financial advisor, Smith is also a divorce mediator who holds the Certified Divorce Financial Analyst designation. She is also an advocate for women’s financial literacy and has founded the program Wife2CFO, created for women who want to take control of their financial future after a divorce or other life-altering event.

Smith’s other passion is advocating for people with disabilities, including her own son, who has Down syndrome. She helped to found The IDEAL School, an independent K-12 independent school in New York City focused on inclusive education.

Echoing many of her peers, Smith says it is a tremendous time to be operating an independent RIA firm, and that the future appears very bright, despite some pressing challenges.

Among these, according to Smith, is the pressing need for the industry to improve its diversity and inclusion efforts, so that the next generation of emerging clients can be served by advisors who know and understand their lived experiences.

THINKADVISOR: Can you please tell us about your entrance into the advisory industry and your early experience building a book of business?

MICHELLE SMITH: Well, I have been in this space since the 1980s, and I can trace my roots as an advisor back to the fact that my mother became a broker in the late 1970s.

She entered the business after her second divorce, actually, because she wanted to take her teaching background and her entrepreneurial spirit and turn it into a profession where she could work for herself and not have anyone set limits on what she could earn or how she could run her practice.

I was a teenager at the time and it just had a tremendous impact on me, seeing my mother accomplish her vision. Like any teenager at that time, I knew nothing about the business, but I ended up interning with her in the summers and helping her at night. I just loved it, seeing the impact my mother was having on people, and especially on women.

Quickly, I started to understand that financial advice wasn’t all about stats and algebra. It was amazing how I watched her build her business by connecting with people and helping to solve their problems, and that was that. I knew I wanted to follow in her footsteps.

My mother is an absolutely amazing person. At the time she was founding her business, we lived two hours from New York City, and so she would commute four hours a day and study for her certifications on the train. She was fully committed to making it.

How did you end up working with your mother and what was that experience like?

So, once I grew up and got my own education and entered the professional world, I also went to Merrill Lynch. Initially, I worked in a separate office, but we did eventually join up, and it was a wonderful experience.

We later moved together to PaineWebber, where we spent 10 years, and then we went to Wachovia and its predecessor firms.

Today my mom is 81 and she lives down the street from me, so our relationship is still really close. She looks at this business I have created and my company and she’s so proud that I was able to follow in her footsteps.

What’s great as well is that I now work with my brother, who is our director of marketing. Several years ago he was getting burned out from his prior corporate job, and at the time we were in the process of launching the Wife2CFO brand, so he was able to help us really get that established. It’s just been awesome to work with them over the years.

Tell us more about your firm’s client niche.

Given my mom’s experience and my own experience getting divorced, I was inspired to become a very early pioneer in the divorce advisory niche, having received my Certified Divorce Financial Analyst designation back in 2004.

At this point in time, about 80% of the clients we serve are high-net-worth divorced women. Many of them were individuals who did not have their own lucrative career prior to their divorce, and so the process of getting their finances in order after that event is just so critical for their long-term well-being.

They are in my office because they need to understand their money. It’s not a job they always want, frankly, but it’s a job they have to do. Many of the women we serve were never the CFO of the family before they got a divorce. They might have managed some day-to-day financial stuff, but many of them were not investment managers or in charge of planning for retirement, so there’s a steep learning curve.

I have male clients too, of course. Whoever you are or whatever life situation you are in, everyone wants to know that they are OK financially, and they don’t want to run out of money in retirement. In fact, for women who may have given up their income earnings ability in order to work inside the home, a divorce settlement can be like a really early forced retirement. It takes a plan.

If you cannot get out there in the workplace and replace what might have been a very substantial income, the divorce planning really does become similar to retirement planning, except you are starting at age 45 or 50. A lot of it is about creating a spending plan and addressing both longevity and sequence of returns risk.

Can you tells us about the decision to launch the fee-based Wife2CFO financial literacy platform?

The basic motivation is that our client niche is just so underserved.

Just think about it. We have a turnover rate of half of all marriages ending in divorce, and that figure increases for second marriages to 60% and again to 80% when a child with special needs is born.

We get a lot of our core clients by referrals from centers of influence, such as divorce specialist attorneys, who know that we have a deep understanding of the divorce process and all the laws and rules across all the local jurisdictions.

The creation of the fee-only financial literacy platform Wife2CFO is a powerful way for us to deliver our expertise at a greater scale, and it opens up our expertise for a broader range of clients, because you aren’t obligated to use us for money management. It’s easy for a divorce lawyer to turn to their client and say, “Hey, you need take this course, because you need to learn this stuff.”

It’s really hard for people to learn financial stuff during an emotional crisis, so the structure and approach of the course is a really important thing. We believe it delivers a lot of value.

Can you tell us about the composition of your firm and your focus on inclusion?

At this moment we have a team of seven people in total, and we are diverse by design. Our staff is majority female, and we all come from different backgrounds. One distinguishing feature is that my brother and I are the only two people over the age of 50.

Our CIO is in his 30s, and our head of family office services is a 32-year-old woman of color. I believe we are doing a good job attracting the next generation of talent, and that’s critical, because the next generation of clients wants to do business with people who understand their lives and experiences.

Our younger team members are actually spearheading an initiative that is building on the Wife2CFO framework, which we are calling Generation You. It’s the same fee-based financial literacy approach, but it’s tailored for young people who generate or come into significant wealth, for example if they are going to receive a trust distribution.

This is key to our next step forward as an RIA, because the massive wealth transfer from older Americans to millennials and members of Gen X has already started, I can assure you. Some of the things we get into include are how to understand prenuptial agreements, how to have difficult conversations about money with a partner, and how to demonstrate that you are fiscally responsible for things like inheritances and trust distributions.

Finally, what can you tell us specifically about your clients who are navigating their retirement?

So much of being happy in retirement is about setting and achieving lifestyle expectations. Regardless of your level of wealth, when it comes to retirement clients, nobody wants to see a dramatic reduction in their standard of living.

Of course, the lifestyle is going to evolve during retirement. That’s normal. We see many people who may plan to spend more in the first 10 years of retirement and then dial back, for example.

The real key to peace of mind is the plan. You have to run the original plan and then keep revisiting and adjusting as things like sequence risk have an impact. This expectation-setting is so critical. If we get expectations management right, it makes us confident that the client isn’t going to blow up their plan by selling at the bottom, for example.

You have to put in the time up front to show people what could happen and how you can respond and keep them on track.

John Manganaro

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