VOLUME 25 / NUMBER 4

It’s been estimated that in 40 years, a staggering $40 trillion (yes, trillion) in wealth will pass from one generation to the next. While it represents the largest wealth transfer in America’s history, fortunes of a different nature will also be in play: the fate of all wealth managers and financial advisors.

No advisor can stay with the status quo. Those who resist change will be buffeted by change ultimately as destructive as a Category 5 hurricane. But for those who are prepared to respond, wealth transfer represents a springboard to a better and brighter future.

For many advisors, the greatest challenge facing their largest clients (typically individuals in their 60s, 70s and older) is assuring the smooth and efficient transfer of assets to their heirs. This is rarely a matter exclusively of estate planning technicalities. Transferring wealth to a second generation often stirs powerful emotions. Some of those emotions are client-specific: the loss of financial independence, the fear of death and concerns about privacy. But others involve the conflicts and misunderstandings related to long-standing family dynamics — issues that the discussion of money is sure to resurrect.

Helping clients meet these complicated goals is a basic requirement for timely counsel and personalized service. And wealth managers must position themselves to connect with the new, rising generation of wealth — and retain assets under management to ensure the longevity of their own business.

Studies show that many advisors are failing to make this connection. The Institute for Preparing Heirs found that 90% of heirs reject their parents’ advisors soon after receiving their inheritances. That’s attention-getting, given that Baby Boomers stand to inherit $8.4 trillion alone, of which $2.4 trillion has already been transferred. The reason, typically, is that heirs don’t know their parents’ advisors and aren’t engaged in the wealth transfer planning process.

To take advantage of this great migration, advisors need to develop integrated communications programs around wealth transfer directed at three distinct groups:

  1. clients who will transfer the wealth; 
  2. heirs to current clients, and 
  3. potential clients who are heirs of wealth transfers.

A communications program must be designed to promote expertise in facilitating wealth transfer as well as advising the recipient of a wealth transfer on managing assets in an efficient manner. 

Addressing the Key Audiences

Clients transferring wealth

During the wealth accumulation and distribution phase of your client relationship, advisors are crystal clear in making recommendations to their clients and letting them know the services they can provide. As clients move to the wealth transfer phase, advisors need to make sure that their intergenerational wealth planning services are prominently featured as well. In fact, sophisticated clients view family wealth planning as an essential service, and welcome the engagement of children.

For sophisticated advisors, it means developing consistent, step-by-step communications that illustrate how you advise clients about wealth transfer. In short, don’t assume that your clients know that this is part of your offering: show them. Clearly, death is a topic one doesn’t launch into easily and should be broached at the right time by a trusted advisor. An advisor can do a great deal of good by offering to help facilitate the transfer of wealth discussion among family members.

For best results, the initial communications about wealth transfer should begin years before they need to be put in place. Effective wealth transfer requires individualized portfolio construction, tax planning and family considerations at a minimum. The effective advisor will be positioned as the “master advisor,” similar to a master contractor, leading the expertise of others, if he or she doesn’t possess it. It takes time to communicate the delicate issues surrounding wealth transfer, and your clients will need to know from you that you have this network.

Family issues and dynamics are almost always involved in wealth transfer. Even when family issues are complicated, clients usually want solutions, despite what they may say or even believe personally. This unarticulated need may be especially acute if the estate involves a family business. In these circumstances, some advisors shy away from family issues because they fear intruding or feel unqualified to address them.

For the heirs-to-be

To develop an effective wealth transfer practice, advisors need to communicate directly to the second generation. It’s important to treat them simply as younger clients or prospects — not as children. Regardless of their sophistication, it’s equally important that the heirs understand what you can do for them.

Heirs may mistrust their parents’ advisors, particularly if they have already established relationships with their own financial professionals. If they are younger or less experienced, they may have a limited understanding of finance or impractical attitudes about money.

At the outset, advisors should carefully solicit the views of the senior generation regarding the family’s lay of the land. This perspective usually provides a good starting point, and gives clients the appearance of control, which can be essential.

Whatever the goal of the second-generation meeting — be it to solicit information or transmit estate decisions — advisors at some point need to meet in “executive session” with children, without the client. This private meeting is crucial to vetting the concerns, fears and frustrations of the second generation — and setting the foundation for an independent relationship. If the advisors want the heirs as clients too, the heirs need to be presented with a program too. Like their parents, they need to know what you can do for them and know it quickly before they seek a competitor to advise them.

Like most people, heirs are most responsive when dealing with someone of their own generation. Consider assigning a generational equivalent to work with heirs, if possible.

Using newer technologies to communicate with clients is critical today and can be a big competitive advantage for advisors. In fact, a survey of millionaire investors — both young and old — showed that they were twice as likely as financial advisors to use e-mail, social media, online communities and texting for learning and managing their wealth. More than two-thirds of millionaires said they wanted their advisors to use these tools.

In dealing with heirs, it is important to avoid stereotypes. As one planner notes, don’t assume the younger generation is necessarily more risk receptive. In fact, they may be comparatively conservative — especially if the parents’ generation created the family wealth. Younger heirs may be fearful of the responsibilities of wealth, especially if they are financially ignorant. In short, each member of the younger generation should be treated as individuals, and interviewed to uncover not just standard information like investment pre-dispositions, but also emotional issues surrounding money.

Advisors need to take a broader approach to educate heirs on the basics of investing and financial planning. In some cases, wealth managers have actually conducted university-type classes for second-generation family members. Aside from expanding financial literacy, demystifying the basics of finance bonds the advisor to the second generation.

There is no magic, one-size-fits-all answer to the wealth transfer challenge facing advisors. Each family is different in its own way. But the key involves communicating expertise and building trust on the part of all parties. Fundamentally, this task involves prudent, sensitive communications — a challenge that no advisor can afford to ignore.