To Build an Advisory Dynasty, Educate the Heirs

By Amy McIIwain, President, Financial Social Media on Monday, September 17th, 2012

Keeping wealthy families as multi-generational clients requires a window into the household’s financial arrangements as well as a human touch. The parents will appreciate your efforts and the kids will learn to rely on your expertise when Mom and Dad are gone.

Wealth managers work hard to protect their high-net-worth clients’ wealth for generations to come, but too many get a cold reward when the heirs take the fruits of their labor to competitors.

Unless something dramatic has changed, barely 14% of advisory relationships survive into the second generation, according to research CPA firm Rothstein Kass conducted a few years ago.

Those 14% of advisors are clearly doing something right, and I have a few thoughts on how to employ both technology and relationship skills to emulate them and extend the lifespan of your accounts.

Start by following the money

The advisor invested a lot of time and work on the relationship early on, but unless the children were brought into that relationship, it just doesn’t transfer. In that case, when your current clients die, the new owners of their wealth has no vested interest in keeping you in the loop.

A multi-million-dollar legacy rarely evaporates right away. More often, the assets simply shift from Mom and Dad’s trusted advisors to whoever the kids bring in to manage their inheritance.

You want to build that relationship, which means having the operational reach to see what the kids are doing while their parents are still alive and the relational savvy to reach out.

The operational side is relatively straightforward. You need technology that can gather data on your clients’ extended family and their consent to do so. For minor children, consent is trivial and the accounts will probably be small — savings accounts, maybe a share in a family trust or inherited IRA.

But while the amount of money at stake here may not be huge, the opportunity to simultaneously establish yourself as the family financial expert and please the parents is practically priceless.

Like most parents, my wife and I are very eager to make sure our kids know the importance of saving for the future and managing their cash flow effectively. We don’t want them to waste whatever they might end up inheriting.

We started small IRAs for the kids as soon as they could legitimately claim earned income and have made sure the contributions kept coming as they get bigger and bigger jobs. We also opened small brokerage accounts with them so they could learn how the stock market works.

A small donor-advised fund also lends itself to lessons about philanthropy, and so on.

All of these accounts show up on account aggregation systems and are available to the advisor to monitor and, where appropriate, weigh in with guidance. Apple or Krispy Kreme, risk-averse or extremely aggressive?

The advisor as educator

On a pure management fee basis, these assets might bring in a few hundred dollars over time — the parents probably won’t begrudge your oversight here even if the accounts aren’t technically under your control — but now you’re making the entire family happy.

The parents get proof that you’re committed to educating their heirs about how to steward a legacy. And the kids grow up knowing you’re the person who turned that $50 check from grandma into a $300 dirt bike with money in the bank left over.

Having access to the account information ties it all together. As the kids mature, it gives you something to talk about, and talking creates opportunities to build trust.

Are the heirs flirting with a music career? Getting into philanthropy? Getting into trouble?

Like anyone else, kids appreciate returns, but what the younger generation actually cares about is continuity. Give them a reason to stick with you, and they will.

They’re very technologically sophisticated as well, so they already expect their parents’ advisors to be watching their accounts and sending them links on Facebook.

To you, it might look like playing around, but it’s actually how these people are learning how to interact with the world as they grow up.

Despite suspicions to the contrary, they’re not all diehard do-it-yourself investors who would begrudge paying you for your professional expertise, either.

Generation Y still goes to the doctor. They recognize the value in what you’ve done for their parents, and if you can show them how that value proposition works, they’ll pay for it.

Making the human touch possible

I’m in the technology business and don’t get me wrong, being able to automatically scan an entire family’s financial profile across the generations is a powerful tool as you look for opportunities to reach and teach the kids.

But its real power is to free up more of your time to make that human contact and communicate your value proposition over time.

Do that persistently and sincerely, and when you get the news that a favorite client’s estate is processing, you’ll be in a much better position to keep that family in your firm.

Of course, you might be retired by then and it’ll be your professional “heirs” who are breathing easier. That’s fine, too. Legacies work both ways.

You May Also Be Interested In:

How to Acquire and Retain Clients with Social Media- A Tutorial for Financial Advisors  (On-Demand Webinar Replay)

How to Boost Managed Assets Using Clients’ Financial Data  (Blog Post by Martin Dickau, CTO, ByAllAccounts)

How to Build Relationships Across Generations: Cater to Younger Clients to Retain and Increase AUM  (Whitepaper by James Carney, CEO, ByAllAccounts)

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