The lesbian, gay, bisexual and transgender community (LGBT) is very much on the minds of wealth managers these days, a fact underscored by a private reception and investment symposium on “Wealth Planning for LGBT Couples” Morgan Stanley Smith Barney is co-hosting Thursday night at the Hotel Solamar in San Diego.
Last November, the College for Financial Planning began offering a new designation, Accredited Domestic Partnership Advisor, to meet the demand for specialized information about the market. And earlier this month, in what appears to be an industry first, Northern Trust launched a formal national LGBT and Non-Traditional Family Practice.
The numbers are compelling. The National Gay & Lesbian Chamber of Commerce estimates a total LGBT population of between 16 million and 20 million people and 1.4 million LGBT-owned businesses in the United States. What’s more, according to the U.S. Census Bureau and the Urban Institute, two-thirds of same-sex couples own their own home, and close to one-third of LGBT individuals have an annual income above $100,000.
Indeed, approximately half the business of New York City.-based UBS team comes from LGBT clients, which is also the “fastest-growing part of our practice,” according to senior vice president Michael Zinn of UBS’s Zinn, Ray and Svatora Group, with about $250 million in assets under management.
The need – and demand – for specialized services for the gay community is both substantial and growing, observers say. “We started getting calls about two years ago from same sex couples who were concerned about estate planning,” said John McGowan, national practice leader for Northern Trust’s LGBT division. “Laws for estates, taxes and other legal areas important to domestic partners differ from state to state because the federal government doesn’t recognize them as a couple.”
While gay marriage is legal in Iowa, Massachusetts, Connecticut, Vermont, New Hampshire and the District of Columbia, the federal Defense of Marriage Act, passed in 1996, decrees that only a man and a woman can be considered legally married.
The resulting confusion—and the fact that the other 45 states either have a variety of civil union laws or no legal standing at all for same sex couples—has spawned a host of financial planning problems for the LGBT community, including what to do when buying a home, making a will, designating beneficiaries, transferring assets and making sure partners have hospital visitation rights.
“The federal government looks at same sex couples as business partners,” said Justin Nelson, co-founder and president of the Washington, D.C.-based National Gay & Lesbian Chamber of Commerce. “So even if the couple buys a house together and have a joint tenancy title, with right of ownership, they are still looking at a lot of estate tax issues because unlike married heterosexual couples, they can’t freely transfer assets between one another.”
Reviewing insurance policies is also critical, according to UBS’s Zinn, noting that domestic couples were not allowed to rollover 401-K account retirement benefits to non-spouses and that social security survivorship benefits still do not apply to them.
“It’s especially important to insure that beneficiaries are on as many accounts as possible,” said UBS investment associate Ryan Svatora, “because if beneficiaries are not designated, assets often go blood relatives, who may not have been supportive of the partnership.”
New Domestic Partner Designation
The myriad and complexity of planning issues for domestic partners led Wachovia Bank to ask the Greenwood Village, Colorado-based College for Financial Planning to create courses for the new designation in 2008, which the bank’s advisors (and later Wells Fargo Advisors) had exclusive rights to use for two years.
Now available to all advisors, courses for the Accredited Domestic Partnership Advisor designation cover wealth transfer, federal taxation, retirement and medical issues. “It highlights rights domestic partners don’t have,” said Gregg Parish, professor of estate planning at the College who designed the curriculum.
Morgan Stanley Smith Barney plans to utilize the designation as part of its effort to cater to the LGBT community, said Alan Wolberg, executive director of Wealth Advisory Resources for the firm. Morgan Stanley is also working with the Williams Institute at the UCLA School of Law on its presentations to potential gay clients, and Wolberg said the firm plans to give at least one presentation a month around the country this year and also make podcasts available for those who can’t attend.
Morgan Stanley also works on LGBT issues through its Office of Diversity and Inclusion and a Diversity Council made up of managers and advisors.
Financial services firms targeting the LGBT community need to make sure they also support the community in other ways, Nelson cautioned. “There are a lot of companies coming into this space, but when it comes time to make a decision, those in the market want to know if the companies are investing back in the community, and if LGBT companies can bid on supplier diversity contracts,” Nelson said. “Companies need to do their due diligence to build a relationship with us, because we’re a very brand-loyal segment.”
Corporate support for LGBT community initiatives was critical, Svatora agreed. “Clients find it incredibly important to work with a company that supports and markets to the community,” he explained. “UBS has been active in non-profit work and has supported initiatives like the Human Rights Campaign. There’s a really big buy-in if the company is visible in the LGBT marketplace.”
Wealth managers interested in the LGBT market also need to keep current, said Kevin Cathcart, executive director of Lambda Legal, a national legal organizations focusing on LGBT civil rights. “This is an area of the law that’s evolving at a rapid clip,” Cathcart said. “I tell everyone that they want to be dealing with people who are keeping up with changes that happening now and may be coming down the road.”