Advisors, your clients’ children might stick around once their parents die, but don’t count on it unless you have already established a close bond with them.
According to a report by Cerulli Associates, just one-in-five (19%) affluent investors use their parents’ advisors, and one-quarter of those who still use the same advisor as their parents indicate that they are looking to switch providers within the next year, the report noted.
Moreover, an overwhelming majority of those investors who opted for their own advisor chose that advisor without giving any thought to the one their parents used, and just 6% gave their parents’ advisor even the slightest consideration, the report said.
But there is still room for advisors to try and retain those family’s book of business, the report said.
“Advisors whose clients have financially interested children should work with them – either helping them with their own financial plans or directing someone else within the firm whose life experiences align with these clients to join the advising team,” research analyst John McKenna said in a statement. “For parents, having family-level conversations can smooth out potential future trouble spots in terms of inheritance or financial support, should misfortune befall either generation."
The financial goals of young investors are not necessarily the same as their parents, the report cautioned. Younger investors are more risk-tolerant on average, but they also may want someone to take a more active hand in their finances.
“While both young investors who use their parents’ advisors and those with their own advisors generally appreciate the quality of the advice they receive, those using their parents’ advisors are far more demanding of specific information and advice,” the report said. They are more likely to say they need more advice than they have in the past, that having a written financial plan is important, that they want more control over their investment decisions, and that they have more trust in financial services firms overall.
“More than ever, children being part of family financial discussions is becoming a ‘need to have’ rather than a ‘nice to have,’ and with an increasingly affluent millennial demographic, advisors cannot afford to squander such business-expanding opportunities,” McKenna added.
While 36% overall of investors who use their parents’ advisors prefer an advisor who is employed by a large, national organization (like a bank, broker/dealer, asset manager), Cerulli pointed out that because younger advisors are more mobile in nature, many of them (43%) are more likely to opt for an advisor who owns or works for a local firm.
“Advisors who emphasize their local roots can build trust with clients,” the report said.
Those who are more likely to switch to another advisor are still highly likely to recommend the advisor to others, “even if the advisor is not the best fit, this does not extend to discomfort with the advisor's provider, suggesting the possibility of a switch within the firm itself,” the report said. “Understanding a client's needs can have a major impact on keeping them in the fold, even after their parents' relationship with the advisor ends.”