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The wealth management circle of life

The key to onboarding the next generation of clients and advisers at the same time

Jul 18, 2019 @ 2:07 pm

By Mike Lover

It's no secret that there's $30 trillion that's expected to be passed down from baby boomer parents to their Generation X and millennial children over the next 30 years. This vast movement of wealth is reminiscent of the point in "The Lion King" when Mufasa told Simba that one day he would be heir. Like Simba, this next generation of wealth is bright-eyed with this news, but how do you prepare them to take it over in the right way?

While the great wealth transfer presents a great opportunity, there's also the potential these assets may transition out of many advisory practices. Historically, beneficiaries have not remained with their parents' financial advisers after they receive an inheritance. Ten years ago, the generational transfer of wealth primarily went to one beneficiary per estate. Today, estates are being split between multiple beneficiaries — sometimes as many as 10 people.

How can advisers set up their businesses to be successful for years to come while also earning the trust of the next generation of clients? To best position for the long term, firms must find ways to connect with clients' children.

First, advisers should start the education process with this cohort at the start of the client relationship. Second, to bring this full circle, advisers should ramp up their efforts in targeting the next generation of advisers to join the firm now. The two efforts are related. There will be a day when you will want to retire and pass down your business. When that day comes, you need to be sure your successor is well-known and trusted among your clients — and their successors.

Ensure your advice coincides with the parents' habits

A recent survey conducted by TIAA found millennials' plans for retirement have been affected by how vocal their parents were about their savings methods — whether following in their footsteps or taking steps to avoid mistakes. This is important because, in our experience, if parents do not have the healthiest spending habits, then their children may not adopt the best financial behaviors. We tell our advisers to give parents advice on how to demonstrate the same savings methods at home that they discuss with them in the office.

One of my favorite methods, and something my adviser suggested I use with my elementary school-aged children, is an app called Greenlight that allows you to pay your child a weekly salary based on chores they complete; the children then pay for their own activities. Instilling a discipline around money helps children understand the value of spending, and therefore the value of savings.

In addition, we advise parents to help their children save money they receive from birthdays or holidays each year. My kids understand that the $50 they receive from Uncle Jeff every year is going right into their college savings account — and they are excited about that.

At the end of the day, advisers are there to help their clients with the best possible financial practices, as that's the variable most within our control. The market is the market — it will always fluctuate. Advisers should ensure their clients are comfortable enough to make decisions with their money based on validated information — not in reaction to the market. By instilling these practices at a young age, advisers can help train their next generation of clients on proper investing and savings methods, which is another value-add for the parents.

(More: Arming clients with the tools to teach kids about finances)

Education begins with whomever the child likes more

This may come as a shock, but in my experience, children — teens especially — are not always willing to listen to their parents' advice. Advisers with whom we work have found great success in holding "savings fairs" and "money seminars" on college campuses for current students and clients to attend with their children. They discuss how mutual funds work, retirement planning and the pros and cons of student loans, among other things.

During my time in college, when I had friends spending $200 of federally owned student loan money every weekend at the bars — not truly comprehending that this was money they would eventually need to pay back — I wish someone had taken the time to lay out the realities of debt versus wealth to me. It'll benefit us all to take a minute to think — is that extra weekend vacationing worth it when you will eventually pay a certain percentage of interest on the cost of that trip?

We have noticed a significant increase in attention from teens who attend these conferences. They appreciate talking about these topics with adults who treat them like adults. By making the connection at a young age, not only will you build the relationship with the next generation of wealth, but the parents are more likely to trust you and refer your services to a friend — "they taught my kid on how to save, and they can teach yours!" Your firm may not make a profit upfront at these sessions, but it will turn your clients into a referral machine and give you an opportunity to recruit HENRYs, as well as the next generation of advisers.

(More: Connect with the next generation now — you'll be glad you did)

Next generation of advisers

This is perhaps the most important piece of advice that we give to clients. About 40% of current advisers will be retiring in the next 10 years, and there is a significant shortage of people to fill that gap.

With the current generation of advisers aging out, it's likely that clients who are onboarded today will outlive their adviser. That said, advisers should include up-and-coming advisers in the practice in discovery meetings and day-to-day communications with clients, and give them the freedom to be the face of the account. This demonstrates to your clients that you have a succession plan in place to care for them and grow their wealth for generations to come.

By including their future wealth manager in the room, regardless of whether you're ready to give the employee full control of the account, you are illustrating that the firm is in it for the long haul. Eventually, your services will come full circle. To quote the great Mufasa, "We are all connected in the great circle of life."

(More: Financial firms must attract millennial advisers to serve new generation of clients)

Mike Lover is vice president of strategic business development at E*Trade Advisor Services.

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