Part 1 of a 3-Part Series Pay Attention To The Kids |
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Prepare Heirs For Assets, Not Just Assets For Heirs There is more than a 95% chance that when your clients die, their heirs will abandon you. With the death of their husbands, only 45% of wives will keep their assets with you. When the wives die, fugetaboutit. You'd be lucky to keep 2% of the heirs. As a result, you are constantly working to replace lost clients rather than attracting new ones. So says a paper written by three founders of the Institute for Preparing Heirs, which provides research, education and training for professional advisors on family dynamics and wealth transition. The paper was published earlier this fall in the Investments & Wealth Monitor, a publication of the Investment Management Consultants Association. FA Digital research found other voices citing similarly alarming stats and voicing dire warnings. "This is one of the biggest problems mature financial advisors face and if they don't do something, they'll lose a substantial portion of their revenue -- and firm value -- over the next few years," a prominent authority told Investment News. Ronald Zeeb, founder of the Heritage Institute, said it takes four new clients to replace the revenue lost when an account is lost through a generational transfer. The Institute trains advisors to work with multi-generational families. The challenge for financial advisors is compounded by a wealth transfer of tsunami proportions: "Every year for the next 50 years, $1 trillion will pass from one generatlon to the next, resulting in the greatest wealth transfer in the history of the United States," said the Investment & Wealth Monitor paper. A variety of reasons have been given for financial advisors being unable to hang onto accounts when the parents die and the kids inherit the wealth. The one that runs through virtually all of the literature on the subject is: The lack of any relationship between advisors and their clients' heirs. Thus, the heirs don't understand and appreciate what the advisor has done to build and retain the family's assets. Others include: • Baby boomers and younger generations are much less impressed by authority figures. • The needs of each generation are different, thus younger generations have a different focus.
What You Can Do "Historically, the industry has focused on preparing assets for heirs; with our more affluent client levels we now begin to offer the other half of that equation -- helping prepare heirs for assets." Investment News reported some of the measures employed by financial advisors to retain the heirs of clients who die: • Engage families in developing "life plans" to transfer values as well as money. • Set up periodic family meetings to discuss how to use money to support what the family believes in. Depending on client preferences, discussion at these meetings can range from full disclosure, giving adult offspring full reports on their parents' assets, insurance and estate plans to conversations that touch only generally on a client's financial plan. Such meetings can make the heirs feel more comfortable with their parents' financial advisors. Frequently in the course of these meetings, adult children become clients and even combine portfolios. • Offer to meet with clients' children at major milestones in their lives, such as college graduation and buying a first home. • Waive account minimums to manage investments of young adults not yet well-established. • Update your office decoration. Old mahogany and polished leather appeals to older clients but doesn't impress Generation Xers and millennials. • Employ advisors and office staff of various ages so when the next generation comes in they see some peers. Next: The Communication Gap. FA
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