You’ve heard “Use it or lose it.” Well, when it comes to you clients’ kids, it’s “Know them or lose them.”
That means, you need to get to know them well—before the clients pass away and their money transfers to the next generation, according to financial advisors and firm executives who handle this issue on a frequent basis.
“We deal with this all the time,” Alex Magid, vice president and senior trust officer at Univest Bank & Trust Co., based in Souderton, Pa., which partners with Girard, the Univest Wealth Division, on trust and estate planning. “The key is to show the children of the client the value that you have provided for their parents or grandparents.
“It is true, this is a business, but it is based on a personal relationship. It is not just a transactional buy-sell situation. An advisor needs to get involved with the client’s children early on,” Magid said in an interview.
According to a recent study by Cerulli Associates, just 19% of affluent investors use the same advisory firm as their parents. However, younger investors are more likely to work with their parents’ advisors than older ones, with 41% of those under 30 retaining their parents’ advisors compared to 19% of all ages. “Advisors must engage heirs early and understand their distinct priorities to retain assets within families,” Cerulli said.
Magid would put the number of lost clients even higher.
“It’s no secret advisors have difficulty retaining family accounts after their primary client contact passes away. In fact, according to our experience, 98% of children fire their parent’s financial professional following the death of a parent, and 70% of widows switch financial professionals within one year of losing their spouse,” he said.
The relationship with the succeeding generation needs to be put in place as early as possible.
“If you wait until the death of the original client or clients, then you have lost the battle” to retain the children as clients, Doug Sherry, president Arden Trust Company, based in Wilmington, Del., said in an interview.
“In many cases the husband drives the financial conversation, but as an advisor you have to make sure you are also addressing the wife and the children,” he said.
Will O'Rourke, wealth and estate planner at Prime Capital Investment Advisors, headquartered in Overland Park, Kan., with $22 billion in AUM, added, “As trillions change hands in coming years, advisors who lay the groundwork now will be best positioned to retain assets within the families they serve across generations.”
O’Rourke said in an interview that he recommends establishing open multi-generational communication channels around estate planning to meet heirs where they are.
“While many baby boomers may avoid the topic, most millennials appreciate candid conversations about inheritance,” he said. “Advisors should prepare to facilitate discussions and coordinate specialized support from CPAs, attorneys and other professionals. With holistic, personalized service and early engagement, advisors can earn heirs' trust and loyalty for the long term.”
Working with the attorneys and accounts who are part of the family planning “is a great way to get everyone on the same page,” O’Rourke said. “You need to communicate the game plan to everyone involved. The conversation does not have to be as uncomfortable as many people think. It can be part of the annual review with the clients.”
The value the advisor provides to the primary clients’ needs to be exhibited to all generations. “From an advisor’s perspective, he or she needs to establish repeated and open communication with each generation,” he added.
Sherry agreed that an advisor’s best hope of retaining the next generation is to talk to them about the wealth they will be receiving.
“Children need to be educated about the money they will be receiving,” Sherry said. “Engaging them when the family is establishing philanthropic goals is a good approach, and talk to them about what you did for the parents.”
The discussion about the services and assistance the advisor provided for the parents is a key to retaining the family account, Magid agreed.
“I’ve had this discussion many times,” he said. “In some cases the children do not even know what services you provide for the parents unless you tell them. In other cases, the adult children may think they want to take over the finances themselves when the parents pass away. They want to make their own mistakes.”
But if a good relationship has been established, they may very well return to the advisor when the task becomes too much for them.
Establishing a good relationship with the children also can serve as a service to the parents.
“It makes the clients feel better when they know they have brought a son or daughter into the planning, and that also helps establish a relationship with the next generation,” he said. “You can’t wait too long” if you want to make the successful transition.
Part of establishing that crucial relationship can be setting up power of attorney for the parents.
Then when the advisor successfully establishes an ongoing relationship with the second, and possibly the third, generation, “the cycle of providing advice starts all over again,” Magid said.