Wealth management firms and financial advisors have their work cut out for them when it comes to holding on to the next generation.
Wealth transferred through 2045 will total $84.4 trillion, and most of that wealth will land in the hands of Generation X and millennials, and there is no guarantee that they will continue working with their parents’ advisors, according to a recent report by Cerulli Associates.
In fact, the report says more than 70% of heirs will change or fire their financial advisor once they inherit the wealth.
But advisor Jill Shipley maintains it does not have to be that way.
“It’s going to be up to us,” says Shipley, managing director and head of family governance and education at Tiedemann Advisors, a $26 billion New York City-based independent investment and wealth advisory firm for wealthy individuals, families, trusts, foundations and endowments. The reason so many next-generation clients want to fire their parent’s advisors, she says, is that they don’t know them. “And that’s our fault. That’s our responsibility.”
To keep clients for more than one generation, Shipley says advisors are going to have to build authentic relationships with the whole family. And the first thing they can do is start where the younger clients are, “not where their parents want us to start or where we want to start,” she says.
She often has conversations with parents and grandparents who ask her to teach their children or grandchildren how to budget or how to manage their investments more responsibly or how to be more engaged in the family business or their philanthropy. But that’s the wrong approach, she argues, because people want to define for themselves what their priorities are.
Advisors need to have honest conversation with family members and get an understanding of their interests, she says. There are many instances when she is on a call or in a meeting with young adults who tell her that they are lost and that they want to get more engaged in their family’s financial decision making.
Shipley says advisors also have to commit to confidentiality with their clients’ kids “because if we have a conversation with a next gen and then go back and tell the parents everything we just heard, we lost already because their impression is that we are only working for the parents.”
It is also important for advisors to show an interest in the causes and things that their clients are passionate about, Shipley says. For example, she has a client who really likes golf, and though she is a “terrible golfer,” that does not stop her from meeting the client at Topgolf. “I am doing something this client likes to do. This is a way to bond and deepen my relationship with the client,” she says.
Shipley believes in involving children as young as age 5 in financial conversations. That doesn’t mean opening the portfolio and showing the number of zeros. “There are many fun and engaging ways to start to teach and involve kids,” she says. “It’s about games that can engage them in learning about the things that are going to be important to them in their future to prepare them for their role and responsibility.”
Shipley says reaching and engaging the next generation early is key. She points to an 18-year-old son of one of her clients who is beginning to learn about responsible investing. “And all this child wants to talk about is dogecoin,” she says. “This is not where I would typically start in terms of financial literacy, but that’s all he cares about. So who cares? My opinion is, let’s engage. It’s a free learning opportunity. I don’t know if the kid is going to get ripped off, but let’s buy one and let the kid learn about the risk, what are the opportunities.” She adds that it is all about meeting the person where they are, even if it’s not where you think it’s best to start.
Shipley runs into people waiting too long to begin the wealth transfer conversation with their family, sometimes people in their 80s who are not ready to discuss a transfer because they believe their kids are still too young. This is a problem. “For many, it’s hard to think about the reality that we will die,” she says. “And the worst thing I have dealt with is not having had that conversation before it’s too late.” That’s when conflicts arise among siblings arguing about the fair and equal share of their parent’s wealth, she adds.
Another mistake she sometimes comes across is when wealth creators do not involve their spouse in the wealth conversations. For example, one parent who may be involved in running a business does not talk to the spouse raising the kids about how the business will pass money on to the children.
“I think it’s really, really important for advisors to encourage conversations between both parents, not just the one that’s looking at the investments more closely, because both parents care about what happens to their kids,” she says.