By Mike Byrnes
For multigenerational families, studies show that most transfers of wealth "blow up." Either the families break apart, with relatives sometimes not speaking to each other again, or the heirs waste away the wealth. Also scary for many advisors is the fact that over 90% of heirs promptly change to another advisor upon receiving their inheritance.
Advisors that focus on helping families stay together during a wealth transfer not only help the deceased parents' wishes become a reality, but they also gain a new generation of wealthy clients.
The Institute of Preparing Heirs hosted a two-day conference in Malibu, Calif., that was called The Great Wealth Transfer. It was a pilot program for select Morgan Stanley Wealth Management top-tier advisors, but was also open to other organizations.
The Current Reality
Unfortunately, when parents pass away, their estates have issues and often fall apart. This is often a sad reality for children and grandchildren, and not the vision of the deceased patriarchs.
Vic Preisser, founding director of the Institute for Preparing Heirs and co-author of Preparing Heirs and Philanthropy Heirs & Values, said many wealth transfers are like the next generation peacefully sitting on the other side of a wall and having gold bricks thrown over to them from the other side. The next generation is just not properly prepared when the money transfers, he said.
Jason Brown, a financial advisor at Morgan Stanley Wealth Management, said, "The vast majority of estates fail to transfer successfully to the next generations." The family harmony becomes broken when the money passes, citing an example of two brothers who never spoke to each other again after their parents died.
"Money is a magnifier. It can be good or bad," he said. Too often, if heirs are not prepared for wealth, they do not know what to do with it and the assets vanish or end up not helping the recipients and their families, he said.
Diane Doolin, a senior vice president of wealth management at Morgan Stanley Wealth Management, pointed out that parents are not having the conversations. It is the advisors role to help educate their clients and then their clients' children. That requires the advisor to know the entire family, including grandparents, parents, children, grandchildren and their spouses.
High-Net-Worth Research
Robert Kenny and Karen Weisgerber, from North Bridge Advisory Group, presented research findings from the Boston College Center on Wealth and Philanthropy. They looked at those with $25 million or more that are going to have more money than they can spend in their lifetime. They asked three core questions:
What is the ultimate goal or deepest aspiration for your life? (They did not ask them about 'money.')
What is the ultimate goal or deepest aspirating for your children?
What is your ultimate goal or deepest aspiration for the world?
In the vast majority of responses, Kenny said, "Their greatest aspiration was that they be good parents." To do this, he added, "They need to let go and let their kids be who they are going to be." The study also showed parents want their next generation to have meaningful lives and relationships.
For high-net-worth individuals, the research found that money frees them from issues, but also creates issues of its own. For example, what to do with free time?
Those of wealth are very worried about how society will treat their kids. They expressed four major concerns:
Relationships - It is challenging to know who does and does not like them because of their money.
Expectations (self and others) - For example, the rich person is expected to pay for dinner, just because they have more money.
Envy (societal and personal) - While this is difficult for adults, it is especially hard for kids.
Stereotypes - People of wealth are all different in many ways, but often get lumped together.
"Wealth doesn't get in the way until others know about it," one survey respondent said.
Lessons From Successful Advisors
Weisgerber said research shows that strong advisors have technical competence, but "what is really important is how they use it." She described this as functional competence, which includes an understanding of family dynamics. By having this, it is easier for the advisors to have meaningful relationships with their clients.
The best advisors set themselves apart by continuing to learn and broadening their expertise. "They are hungry for knowledge," Weisgerber said.
They also have the ability to talk about difficult subjects with their clients and be comfortable in doing it. One respondent said that listening was something he worked on every single day. This is crucial to understand family dynamics.
Having a conversations to get to know clients is very important, Weisgerber told the attendees. "Intimate trust in itself matters. You matter! People buy you," she said.
Advisors that go beyond the investment management services and offer wealth transfer assistance create better relationships. Proof that this is true is evident in how the profession has evolved. To meet wealthy clients' needs, the industry has progressed from brokers to financial advisors that can offer much more than just stock picking.
Those in the industry that do not change are at risk of being replaced, the speakers said. "Ignore the family dynamics at your peril," Brown said, adding that ignoring these issues will lead to the loss of family assets.
He described how talking about these topics helps an advisor:
Differentiates a practice.
Deepens existing client relationships.
Cultivates new affluent families.
Regarding improving existing client satisfaction, Doolin said, "Some of the things that will come up from these conversations are things you might have never known about. It will help you in the relationship."
One thing was made very clear at this conference: Families and advisors do a great job preparing the assets for the heirs, but where they fail is preparing the heirs for the assets.
These facts are not just a wake-up call, but a huge opportunity for those who focus on preparing heirs. Advisors need to have these conversations now, before it is too late.
Mike Byrnes founded Byrnes Consulting to provide consulting services to help advisors become even more successful. His expertise is in business planning, marketing strategy, business development, client service and management effectiveness, along with several other areas. Read more at www.byrnesconsulting.com and follow @ByrnesConsultin.