If family offices manage the finances of the 1%, Franco Lombardo’s caters to the 1% of the 1%. Most of his clients have a net worth north of $500 million, he says. And if you believe him, the ultra-rich have problems—problems with money, no less.
For example, one of Lombardo’s clients hoped to pass his billion-dollar business down to his daughter, but he wanted her to work in the firm first. The daughter felt guilty, because she was only working part time and was set to become the boss. “She was going to make decisions with feelings of guilt that she didn’t deserve this,” Lombardo says. “So what kind of decisions would she make? That’s an example of behaviour risk.”
Lombardo’s Vancouver-based firm, Veritage, puts the counselling first in investment counsel. In the 1990s, he was just another financial adviser. He created plans, sold product and offered advice. Then in the early 2000s, he had a simple but life-changing chat with a business-owning client. “I asked him how his children and siblings were, and we had a 45-minute conversation,” he says. “We talked about the portfolio for only a minute.”
As he had more of these family-focused conversations, he realized that money and relationships have a big impact on each other. Identifying how someone acts with their family and friends can actually help that person make better financial decisions, says Lombardo, who started concentrating on the behavioural side of finance full-time in 2008.
Lombardo has since written four books about the psychology of money. Our subconscious feelings about our finances form what he calls our “money motto.” Most people have a motto that doesn’t serve them well, he adds. They think money gives them control or allows them to fit in, and that affects how they spend and save. One of his clients felt money brought trouble, so she ended up giving much of it away.
While everyone’s money motto is a little different, they tend to fall into four categories, Lombardo says. There’s the investor, who invests money but does not value it (or the people in his or her life). There’s the spender, who fritters away cash and takes from relationships. A third personality type values and respects both money and relationships, to a fault. The final group is fearful, deep down; they’re afraid of money and feel they don’t deserve to be in a relationship.
The client who was afraid of money? It turned out that she had trust issues with her father and with her own judgment. Once she identified this problem, she felt more comfortable with her own decisions. She still wanted to give money away, but she was able to do so strategically.
If more investors and advisers thought about how their personal lives affect their money habits, they’d make better financial decisions, says Lombardo. To find your own money motto, think about which of those four categories you fall into and write it down. Lombardo asks clients to put it on a laminated card to carry with them in their wallet or purse. “I make them live with it until they get sick and tired of it,” he says. “We don’t change behaviours until we get tired of the behaviour.”
Understanding your money motto “goes to clarity,” he explains. If someone finds out that they’re a spender, then their adviser can help them mitigate its excesses. If someone’s only investing and not spending, then they can work toward a balance. “We want people to move away from the extreme,” he says, “both with their money and with their lives.”
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