For clients who have built up wealth over a lifetime, their heirs are likely to be paramount in their thoughts, but generational wealth transfers can be challenging, especially where there are conflicting views on how to manage money.
David Tam is adept at navigating these matters. As a financial advisor with Edward Jones, he has seen how conversations can bring clarity and greater certainty to clients and their heirs, despite their delicate nature.
He told Investment News that it’s important to have the conversations earlier rather than late and bringing younger family members into meetings with their advisor, as identified in the firm’s research.
“Ideally, these conversations should begin well before any transfer of assets occurs as earlier involvement creates a sense of trust and intentionality,” urges Tam. “Some older adults support their family in real-time (through experiences, education, homes), which can leave younger generations uncertain about their inheritance and potentially responsible for their parents’ retirement costs. Proactive discussions can prevent surprises and help ensure family members are prepared for the future.”
While the rationale for tackling wealth transfer early is clear, so to is the potential risk of family conflicts, especially as younger generations may have very different ideas about investments and wealth management than their older relatives.
But Tam notes that money talk can often be uncomfortable and the role of the advisor is to ensure that everyone is heard – and their needs and views understood - before seeking to find consensus or ways that the range of ideas can be effectively incorporated into the family’s plan.
“By identifying and vocalizing shared family values, financial advisors can develop flexible strategies that accommodate different risk tolerances and investment preferences,” he explains. “When families have the opportunity to share their investment and savings preferences openly, financial advisors can create a flexible go-forward strategy.”
One area of potential dispute is the products and strategies that are preferred. Younger generations may be more focused on newer – perhaps riskier – asset classes than the older cohort who may mostly favor stocks and bonds. And advisors may be competing with finfluencers and other online advice, although Tam highlights the two-way nature of an advisor relationship that helps to establish trust.
“For example, a younger client who works in the tech industry came to me after watching a video on social media promoting a high-risk cryptocurrency as a safe investment with guaranteed returns of 25%,” he says. “She was excited but also uncertain, so she reached out for my perspective. During our conversation, I let her know that her instinct was spot on. Always seek advice before making a major financial decision.”
Tam’s approach to working with this client was to explain the risks of crypto asset investment, but rather than dismiss her interest he explained how it could fit as part of a broader portfolio strategy. A review of her financial goals included long-term plans such as building an emergency fund and saving for a down payment on a home.
“By the end of our discussion, she felt more confident about focusing on a disciplined investment approach while keeping an eye on innovative opportunities within a manageable risk level,” he says. “This experience reinforced the importance of having a trusted financial advisor to filter through the noise of online advice. If it sounds too good to be true, it usually is.”
Another area where values across generations may not align is philanthropy, but Edward Jones’ research shows that this is not always discussed, even though younger generations appear interested in charitable giving.
“A couple I worked with had traditional views on charitable giving, focusing on legacy donations to their local church,” Tam recalls. “Their daughter, however, was passionate about addressing climate change and wanted to support environmental nonprofits. Initially, the family struggled to find common ground, as their priorities seemed at odds.”
Tam facilitated a family meeting so that parents and daughter could share their views and it was agreed that establishing a donor-advised fund should be part of the overall financial strategy.
“This allowed us to offset the capital gains tax of a recent rental property sale and allowed the couple to allocate a portion of the fund to support their church while providing their daughter with the flexibility to recommend grants to environmental causes she was passionate about,” Tam says.
Creating the DAF was a useful way to ensure that all family members’ priorities were included and the family bond around charitable giving – and their ongoing conversations around philanthropy – had a structure.
Copyright Bloomberg News
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