I'm told that financial advisors lose 70% of their clients when the wealth and power pass from the first generation to the second generation. I can't confirm it. But whatever the number, keeping the next generation from wandering away is a key problem for all types of financial advisors, whether they are "people" or institutions.
My experience says that the "people" have a fighting chance to retain second-generation clients while the institutions-private banks, wirehouses, etc.-are probably not even going to retain their current positions. Time was when families shared a local banker-the neighbor across the street, perhaps. And then there was a time when E.F. Hutton talked and people listened, and of course there was a time when the bull roared off the business cards of Merrill Lynch bankers.
Like a lot of other folks, I think the market crash of 2008 and the seismic shifts in the global economy this year are serving to hasten what was already a move from institutional brand name advice back to the "people," like yourselves. Isn't that what Bob Veres, publisher of the industry newsletter Inside Information, has been telling us since the 1980s when he wore his dinosaur T-shirt to industry conventions? The dinosaurs were labeled "PaineWebber" and "E.F. Hutton" and Merrill Lynch." On September 27, UBS chief executive Oswald Grubel confirmed to the Financial Times that PaineWebber is on the block.
So I think the "people," the independent advisors, won the last round. But just because your clients would rather work with an independent financial advisor today doesn't mean their kids will want to work with the same one. There are always other "people" around trying to make your clients a better offer. How will you hang on to the future generations of a family client?
I've tried to round up some ideas about that. On October 1, Teddie L. Ussery, a family business consultant who runs a company called Family Matters, hosted a panel at the annual Family Wealth Alliance multifamily office meeting in Chicago on just this topic. I've known Ussery since 2004 when she served as director of Synovus Family Asset Management, a division of Synovus Financial in Columbus, Ga. Synovus is a bank, making Ussery a banker, which I was willing to overlook because of what she learned about families and how she used it.
Ussery had originally gone to work for a smaller bank, owned by a family, that grew into Synovus. The family patriarch wanted her to head a family office for his family and to add other clients. She was free to make client needs her top priority rather than selling bank products. Her family office succeeded in bringing in families such as a $50 million family from the West Coast precisely because she was an independent rather than a bank product pusher. Her growth with these families set Ussery on a course of becoming deeply involved in family dynamics and governance and communication. Her firm today does no investing at all. Another point for the "people" versus the institutions.
There are other happy banker stories like this. At least one. GenSpring, the offspring of Sun Trust in Atlanta, is one of the most successful and rapidly growing of the multifamily offices thanks to its independence and focus on providing advice rather than products. I've never gotten the straight scoop on Sullivan, Bruyette, Speros and Blayney since it became part of Harris Bank in Chicago so I can't comment.
But I digress. Holding on to the second generation. Each of the experts I talked with, like Ussery, has personal experience in retaining clients and each insists that it's the relationship that creates the "stickiness." Of course, independent financial advisors have known for years that the relationship is the magic. But the people I talked with have special insight into rolling that stickiness over to the future generations.
Ussery emphasizes the importance of staffing family offices to work with the next generation and to set up a governance structure and a method to identify the family dynamics and the gifts and dreams of later generations. "One of the keys is to find what the passions and gifts of the next generation are and to match them with the asset levels of that family to use that money to grow human capital," she says. So doesn't the process become much like what the "people" planners refer to as life planning? Put another way, some might call it discovering how to keep growing your whole life long and how to help your clients do the same thing.
(The first time I heard the term "human capital" was some years ago at a wonderful seminar presented by Richie Lee and David Diesslin, planners in Dallas and Fort Worth, Texas. Lee gave a presentation about the importance of human capital, how your own future and the future of your clients depend on growing the human wealth of the person by enriching his skills and passions and work and spirituality.)