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 said more than 70% of heirs will change or fire their financial advisor once they inherit the wealth.
But advisor Jill Shipley said it does not have to be that way.
“It’s going to be up to us,” said 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 said, 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 said advisors are going to have to build authentic relationships with the whole family. And the first thing they can do is start where the clients are, “not where their parents want us to start or where we want to start,” she said.
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 said, 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 said. 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 said 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 said. 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 said.