Although the amount of money millennials are set to inherit from their baby boomer parents over the next decade is measured in the trillions of dollars, many individual millennials probably will inherit less than they are anticipating, according to a money manager for wealthy families.
That misunderstanding is bound to lead to problems, said Ken Eyler, CEO of Aquilance, a national financial services firm for high-net-worth clients based in Trumbull, Conn.
At the same time, many inheritors are ill prepared to deal with the money they do receive, Eyler said in an interview. Aquilance handles personal finances and bookkeeping for wealthy families, entrepreneurs, athletes, and individuals.
“Historically, significant wealth can be a source of disunity within a family, rather than unity,” Shawn Barberis, president of More Than Money 360, a consulting firm for financial advisors with high-net-worth clients, said in an interview. “If the transfer of wealth is to be successful, it has to involve discussions within the family of legacy and governance.”
“The creation and successful transfer of family wealth involves three steps: making the money, protecting the money, and preparing the family to inherit the money. The last step is the one many families miss,” Eyler added. Financial advisors can help clients make sure that do not miss the final step. Most estimates put the amount millennials will inherit over the next decade at approximately $68 trillion.
A successful wealth transfer revolves around communication and transparency, both executives agreed. The More Than Money 360 technology is designed to prepare and empower families for their family meetings to create that atmosphere of communication that leads to transparency around family wealth, Barberis said.
Because inheritors are unprepared for their new wealth, many money transfers fail, Eyler said. The next generation may spend all of the money or fail to manage it in other ways.
“The next generation needs to understand what went into making the money and how much of it is really available, even if they do not agree on how – or how much of it—is transferred to the next generation,” Eyler said. “The next generation needs to understand that inheriting a business worth $100 million is not the same as inheriting $100 million, or that the creating generation may want much of it to go to charity, instead of to the kids. Clarity is the goal of any family meeting.”
The families that achieve a successful transfer of wealth are the ones that do not define wealth as mere money. Rather, they have a qualitative relationship with the money, Barberis said.
At the same time that many clients are failing to successfully navigate the great wealth transfer, advisors are missing a huge opportunity to build relationships with the next generation if they do not actively assist in the process, the two said.
“Transparency breeds trust” among family members, Barberis said, but many advisors do not have the knowledge or experience necessary to truly assist their wealthy clients. They may need to bring in consultants to help. “Advisors can be missing an enormous opportunity to add qualitative value to their services if they cannot assist in the transfer of wealth.”
The wealth creators can set out the rules for the next generation to inherit the family wealth, but the inheritors deserve to know what will be required of them, such as maintaining a job or achieving a level of stability, the two executives said. Advisors also need to understand and be able to communicate to the next generation the societal impact that wealth can have.