Practice Management

Planning for the next generation

Financial advisers know all too well that children tend to jump ship to another adviser soon after they…

Financial advisers know all too well that children tend to jump ship to another adviser soon after they inherit assets from their parents. To avoid losing assets when wealth moves to the next generation, advisers must make fostering multigenerational client relationships a critical component of their practice.

The steps to do so are relatively straightforward. But in order for advisers to follow through on their commitment to fostering strong relationships with their clients' children and grandchildren, they first must set aside the time necessary to create and nurture such ties, and enshrine this task as a key component of their firm's culture.

START EARLY

Ideally, the multigenerational relationship-building process should commence at the inception of the client relationship. Ambitious advisers already are thinking 10, 20 and 30 years into the future, and positioning themselves for when a client's children may become clients in their own right. In order to make generational transitions as seamless as possible, communication is key.

While it may seem like common sense, it is amazing how many wealthy individuals do not prepare their children and grandchildren adequately for managing the wealth they worked so hard to accumulate. Many have never discussed the matter.

A 2011 survey from U.S. Trust reported that 84% of wealthy parents believed their children would benefit from meetings with financial advisers, but 59% had never even introduced their children to the advisers managing their assets. More than half had not fully disclosed their wealth to their children, largely because they never thought to do so.

BALL’S IN YOUR COURT

It falls on financial advisers to take the initiative and set up meetings with clients, and their children and grandchildren. These meetings can be used to define a shared goal for all generations. Family members can write mission statements indicating their common values and how they wish to govern their family life, while emphasizing respect for each family member's personal aspirations and views. The best way to guide families effectively is to learn each family member's risk tolerance, investment objectives and reporting preferences.

Advisers also can engage their clients' heirs by creating communication plans detailing how they intend to keep clients' children and grandchildren informed about their portfolios. The matriarch and/or patriarch should approve the plans, along with their heirs. A detailed communication plan should include information such as frequency of contact regarding portfolio updates, preferred methods of communication for each family member (some prefer in-person meetings or phone calls, some prefer e-mails). Certain solutions, such as robust client relationships management software, are likely already in place within many advisers' practices and can be adapted to meet the needs of each member of a client's family.

Advisers also can take the lead on educating heirs about their inheritance. In the U.S. Trust survey, only 34% of respondents strongly agreed that their children would be able to manage their inheritances properly.

The time to educate heirs about financial matters could begin before adolescence. Experiences that might seem insignificant at first glance, such as holiday shopping, going to the movies or eating at restaurants, can be used to teach young people about finance and the importance of good spending habits.

Advisers can also help a client's younger heirs (and later retain them as clients) by using social media. Advisers should encourage clients' young heirs to follow their firms on Facebook and Twitter, and post financial tips, articles and commentaries via those social-media tools.

iPad applications that provide access to economic research, and commentaries and video interviews with financial professionals and economists, also can add value. Fashioning similar tools for wealthy clients' children and grandchildren will not only strengthen their financial acumen but also increase the likelihood that they will keep their inheritances with the same advisers.

By making the extra effort to follow through and complete the steps required to build and strengthen relationships with multiple generations of wealthy clients' families, advisers can make sure 2012 is the year they actually start building multigenerational relationships.

Robert Fiore (rfiore@pcrinsight .com) is president and chief executive of Private Client Resources LLC, a provider of private wealth aggregation and data-driven solutions for wealth managers, advisory firms and family offices.