While there are a variety of different estimates, the general consensus is that trillions of dollars are going to be handed down from today’s wealth holders to their children in the years to come, and in most cases financial advisors will be involved in the transfers.
What is very telling is that when wealth is transferred generationally, children usually replace their parents' financial advisors. Many times these transitions cause significant adverse effects for the financial advisors and their firms.
One strategy many financial advisors use to combat this trend is to provide investment-oriented educational programs for future inheritors. The idea is to combine a value-added service with the opportunity to develop relationships with clients' children. The logic of this approach is fairly straightforward, but it is generally of limited efficacy.
The problem for advisors offering such programs is that people want to learn about things that matter to them. For example, people are more inclined to look up diseases on the internet when the affliction involves themselves, family or friends. Rarely will they search the internet for illnesses that do not touch them in some way.
The same approach to learning applies to future inheritors. They will most likely be interested in learning about investing when they have or are close to getting their inheritance. Moreover, the inheritors who are interested in learning are proportionately more inclined to leave their parents’ financial advisors.
Financial advisors, however, can employ more powerful approaches to preserve assets under management after a transition.
The key to success in maintaining assets when money is passed to children is based on two core concepts. One is that the focal point of the process must be the wealth holder—the parent. He or she is the person the advisor has the relationship with and all actions have to recognize and leverage that relationship.
The other core concept is understanding the relationships the wealth holder has with his or her children. By knowing the family dynamics, financial advisors can position various solutions that, when done well, will likely lead to a high percentage of inherited assets remaining with the advisor.
With trillions of dollars at stake, financial advisors who employ methodologies to hold onto their managed assets—even after they've been inherited by clients' children—will be able to significantly grow their books of business during the upcoming decade.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.