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What really happens when wealth is transferred

Advisers and clients often do a great job preparing the money for the family, but they fail to prepare the family for the money

Jun 21, 2016 @ 10:00 am

By Shawn Sparks

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Every year, trillions of dollars are passed on to beneficiaries.

In many cases, the breadwinner has already worked through every detail of their estate plan with their financial adviser, CPA and attorney to make sure everything has been set up correctly. They have worked hard for their money, and they want to be sure their family will be protected and that the proper legacy will be left when they face their final breath.

Regardless of how well you and your clients have set up an estate plan, new studies are revealing shocking facts about what happens when wealth is transferred.

• Shocking fact #1: 70% of wealth is destroyed by the second generation.

• Shocking fact #2: 90% of wealth is gone by the third generation.

To add insult to injury, you as an adviser have played a huge part in planning and preparing your client up to now. You've worked closely with them to help them achieve their goals. Would you believe that after your client passes, 70% of widows find a new adviser? Sixty-six percent of children fire their parents' adviser as well.

So why do these things happen? Why do widows and children find new advisers, and why do these plans take a turn for the worst when the breadwinner passes on?

The reason is relatively simple. Advisers and clients often do a great job preparing the money for the family, but they fail to prepare the family for the money.

In this day and age, many wealthy clients have seen the effects of how money can backfire, resulting in spoiled kids or the so-called trust-fund effect. Because of this overwhelming fear, it has led them to keep a tight lip around finances with their family. They think the answer is just to not talk about money at all.

This is a recipe for disaster, especially when you consider that beneficiaries often have to manage even more money than their parents because they inherit all of their assets plus their lump-sum life insurance.

Without educating and preparing the family for a large inheritance, it's no surprise that most heirs do a bad job of managing their money. And without any awareness about how the wealth was invested or grown, or the plan their parents had in place, it's no wonder two out of three beneficiaries see out a new adviser.

Thankfully, there is a way to help your client's legacy last and to keep the assets that you have under management.

3 THINGS YOU CAN DO

It all starts with communication. While working with your client, it's important that you educate them on the importance of preparing the family as well as preparing the money. Even if the breadwinner makes all of the money decisions, it is important that you get to know their spouse and kids. You can do this in a number of ways.

• Host a family money educational event that your client can bring their family to, to learn together about common money issues.

This could be hosted in a big group setting with multiple families at once, or you could do this for just one family at a time. The goal is to present the information, but also let your clients and their families have an open dialogue about the financial issues that are important to them.

• Host a client-appreciation event where you invite the whole family.

Many advisers host client-appreciation events, but if you want to get to know your clients' families, you should consider one where all of your clients' families are welcome and encouraged to attend. This could be a big bbq, or a themed party like a Hawaiian luau. One adviser I work with puts together a lot of kids entertainment and encourages his clients to bring their grandkids.

• Let your client know that their family is welcome to your services.

Let your clients, and their families know that you are committed to helping all of them in any way you can. For example, a client in their 70's may have children who are within a few years of retirement. If you focus on retirement planning, they would be ideal for you. However, if they need help with matters that don't not fall in your wheelhouse, most likely you know someone you can refer them to.

By taking a long-term view, you end up doing a much better job helping your clients. You can help them take estate planning one step further by preparing their family, which most advisers neglect to do. You will get more clients organically through your clients' family members, and you won't lose business every time one of your meaningful clients passes on.

Shawn Sparks is vice president of adviser development at Advisors Excel. He writes about the career lessons he has learned on his weekly blog, 52 Sparks.

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