Over $30 trillion in wealth is poised to shift generations over the next few decades and, with the way it looks now, most advisors are going to miss the boat.

At LPL Financial’s Focus conference, Chris Hennessey, a lawyer, CPA, faculty director at Babson College School of executive education and member of the Putnam Business Advisory Group, offered advisors advice on how to retain the clients who will be the recipients of this massive inheritance.

The size and scope of the NextGen opportunity, or threat – depending how one looks at it—is immense. Baby boomers hold the majority of assets, but when those clients are gone, studies show their spouses and children tend to move on to other advisors. Hennessey stated that just 45 percent of assets are retained by advisors when the first spouse dies. Amazingly, only 2 to 10 percent of assets are retained when the children inherit the wealth. 

These are extremely scary or exciting statistics, depending on an advisor’s viewpoint.

Why Does The Wealth Leave?
Hennessey shared a case study of what happens. A mom loses her husband, who managed the financial affairs for the family. Because the mom had little interaction with the financial advisor, she asks for advice on what to do. Her eldest daughter did her own research and recommended alternative advisors. The mom took the daughter’s advice and the wealth went to another advisor.

Only 3 percent of clients said their advisor asked to meet their children, said Hennessey. So it makes sense in this case study that the eldest daughter would recommend someone else. No wonder advisors are not prepared to retain the assets. 

The lesson learned: Advisors should know the lead child as they have a lot of influence.

Hennessey said, “The advisor didn’t have a good enough relation with the wife, but he didn’t know the daughter.” He told attendees they should always be meeting with both the husband and the wife. They should also be preparing the heirs to receive the assets.

What Can Be Done To Capture The NextGen Assets?
Hennessey liked the idea of doing a family summit with children, parents and grandparents. He said a cut-off age 30 can be used, and it is important to supervise whether the meeting includes having relatives coming in from out of state.

Advisors need to get over the limited thinking of "No assets, why bother?" Family liquidity events can be sudden and unexpected.

Hennessey shared some ideas for connecting with the NextGen to build relationships:

1. Teach finance – Have the children pay household bills and balance the checkbook, even if they need to do it through an app on a phone.

2. Do a Social Security seminar – Ideally, Hold this before the parents turn 66. 

3. Learn aboout LinkedIn – Use social media education to show children how to get into college and get a job. 

4. Suggest an "I love you" letter – Prepare the parents to pass on important information in the event of death, like passwords and assets. Get them to understand they should have some conversations with their kids, even if they are not disclosing how much money will pass.

5. Review beneficiaries – Besides keeping beneficiary info up to date, use the birth date information to send birthday cards for a simple way to stay in touch.

6. Discuss family values – Help communicate a plan. Advisors can even moderate the family meetings.

7. Take advantage of accelerated gifting into 529 plans – Let the NextGen see who is investing their college money.

8. Explain the merits of a stretch IRA strategy – Communicate that an inherited IRA is to take the minimum distribution every year, as opposed to withdrawing it all in less than 24 months, which is currently what most do.

9. Conduct retirement education – Do a checkup for the next generation.

10. Determine whether a trustee IRA arrangement makes sense – Provide education on creditor protection and the risks of an inherited IRA after the recent court ruling. 

11. Discuss the possible benefits of a Roth IRA – Get the NextGen to fund it and come in for a meeting.

12. Avoid taxes – Shift income through giving. Consider gifts of appreciated securities, especially where the independent children with little income might have zero capital gains expense.

13. Do the estate planning basics – Make sure clients have a will, power of attorney, healthcare directives and more.

14. Discuss umbrella insurance – Talk about having more than a $1 million policy, as net worth is only half of the equation. Future wages need to be considered. 

15. Look into family loans – Explain when a "family bank" might make sense.

Advisors can no longer ignore the next generation.  If they use some of these ideas for reaching out to their clients and the clients’ families, they can connect both down and up generations. They will be helping their clients with the important topic of wealth transition, while also retaining assets and winning new clients.