Taking on the responsibility of managing your mother-in-law's investment portfolio—or indeed any family member’s investments—can feel akin to stepping onto a financial minefield. At first glance, you might not see the danger.
However, when you factor in market volatility, the complexities of family dynamics (like sibling interests in future inheritance, and the delicate relationship you have with your mother-in-law), the risks quickly become apparent.
The situation boils down to a crucial question: What are the risks of taking over a family member’s portfolio?
When you step into this role, you’re not just offering a helping hand—you’re effectively becoming the adviser. And with that comes significant responsibility. As any professional adviser would tell you: “The adviser shoulders the responsibility to answer for the portfolio.”
This means that as soon as you assume control, you’re the one on the hook for the portfolio's performance – whether it’s soaring or sinking.
We are living in an era of unprecedented intergenerational wealth transfer. Many of the now-adult children in line to inherit are acutely aware of the financial shifts ahead for them. As such, your every move as the family portfolio manager will likely be scrutinised. Any siblings, each with a vested interest in Mum’s money (and by extension, their potential inheritance) will watch closely. Each market dip might not just prompt a concerned call from your mother-in-law, but from the entire family.
What started as a well-meaning gesture can quickly turn casual gatherings into de facto shareholder meetings, with you reluctantly cast as the CEO who must justify every decision (and any losses).
But let’s focus on the heart of the matter: Risk.
When you take on the role of managing a family member’s investments, you also take on the risk. And this isn’t just a financial risk; it’s an emotional one.
Market downturns are inevitable. No matter how astute your decisions or how well you time the market, there will be periods when all portfolios underperform. Imagine the market drops 20% over the next three months. Who will be the one explaining this downturn to everyone? You will.
And while you may have a deep understanding of market cycles, your mother-in-law—and perhaps even your spouse—may not. They will likely focus on the changes you made rather than external forces. To them, if something goes wrong, it’s because of "that thing you did."
This scenario isn’t limited to in-laws. It applies across the board to any family member whose investments you take under your wing. Whether it’s a sibling, a parent, or even a cousin, the same dynamics are at play.
You’re no longer just a helpful relative—you’re the adviser, whether you like it or not. And when things go wrong (as they inevitably will at some point), you’ll be the one in the hot seat answering tough questions and possibly facing strained relationships.
Your well-meaning intervention could result in tension that lasts far beyond the financial recovery. Consider what happens when the market takes a significant downturn. Family members, particularly those less financially literate, may not understand the ebb and flow of the markets. They may only see that their portfolio was performing "just fine" before you stepped in. They may not appreciate that even the most well-constructed portfolios can suffer during market turbulence.
In their minds, you made changes, and those changes coincided with losses. The blame game begins. You, unfortunately, become the target.
It’s a bit like helping someone with their computer. If something goes wrong afterward, no matter how unrelated it is to what you did, it’s always "that thing you did."
The same logic applies here. By altering something they believed was working, you’ve opened yourself up to scrutiny and blame. Even if your decisions were sound and your intentions pure, the perception that you’ve caused a problem will be hard to shake.
This brings us to the ultimate question: Is it worth it?
Taking on the management of a family member’s portfolio isn’t just about numbers and investment strategies. It’s about relationships, expectations, and the potential for conflict. While the thought of helping a loved one may seem noble, the risks involved are substantial. You’re putting not only your financial acumen on the line but also your family relationships.
Before diving headfirst into managing a family member’s investments, it might be wise to consider the consequences. Managing your own portfolio is one thing, but when you mix family and money, the risks multiply exponentially.
The emotional toll of managing another person's money, particularly a relative's, can be overwhelming. It’s worth asking yourself if you’re prepared to handle not just the financial responsibilities, but also the inevitable souring when things don’t go as planned.
Recommending a professional adviser is likely the best course of action for everyone involved. Advisers are trained to navigate the complexities of financial markets; perhaps more importantly, they are paid to shoulder the responsibility that comes with it.
By bringing in a professional, you’re not only ensuring that the portfolio is managed by someone with the requisite expertise… You’re also preserving family harmony. Maintaining positive family relationships—and ensuring you’re not the one explaining a 20% market drop over Christmas dinner—is worth far more than any potential financial gain.
So, before you take on the mantle of portfolio manager for your family… think carefully about the risks, both financial and emotional. Sometimes the best advice you can give is to let a professional handle it.
After all, keeping the peace at the dinner table is an investment that pays dividends for years to come.
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 371.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
