From the October 2006 issue of Investment Advisor • Subscribe!

Advancing the Conversation

Advisors' role in helping clients and heirs address end-of-life issues--Behind the Numbers

Death. As a topic of conversation, it is obviously not a favorite for most people. Yet death, and its profound and multi-layered impact on unprepared families, must be discussed and addressed. Unfortunately, investors and/or advisors may choose to avoid it completely.

As part of MainStay Investments' 2006 edition of the Across Generations research, we wanted to identify, among mass affluent investors, the communication disconnects between generations when it comes to matters of financial planning and transfer of wealth. We also wanted to discover how financial advisors can better understand this dynamic and how they can take a proactive role in assisting their clients with necessary, yet difficult, conversations.

The results of the research may surprise you. By and large, survey respondents welcomed proper financial advisor participation in facilitating "difficult" conversations between clients and their heirs. In this, the first of two columns, we'll relate our findings on these issues.

The Harsh Reality

One of the biggest concerns taking hold of the advisory industry is loss of assets under management (AUM) as part of the impending wealth transfer from matures (those aged 60 to 82) to baby boomers (age 41 to 59). The fact is, advisors risk considerable and sometimes dramatic losses of assets when clients pass away and their heirs transfer management of their inheritance to themselves and/or their own advisors. Advisors can play a crucial role in facilitating communication among families, not only making client families' life better, but protecting themselves from significant loss of AUM.

Mainstay Investments' 2006 Across Generations study revealed that one third of affluent families haven't talked about wealth transfer or estate planning issues. Our research also indicates that investors are less likely to avoid these emotionally-charged and difficult conversations if a financial advisor facilitated them. Consider the following:

- Surprisingly, almost a third (32%) of married respondents reported they don't have a last will and testament to help with estate planning and asset transfer. GenX (age 26 to 40) married couples in particular had the highest incidence of not having a will at 50%. Perhaps even more surprisingly, a large percentage of married Late Boomers (average age of 46) had no will (39%).

- Seventy-two percent of parents said they would encourage their own financial advisor to discuss wealth transfer and estate planning issues with their children, while 50% of adult children would encourage their own financial advisor to discuss wealth transfer and estate planning issues with their parents.

- Eighty-nine percent of HNW respondents said that a financial advisor would be important to manage the assets for the surviving spouse.

Our study found that while advisors' concerns regarding retaining these assets are valid, there are real opportunities for advisors to maintain, and even grow, their books of business during the era of one of the biggest intergenerational transfers of wealth in history.

The Silver Lining

There is a widely held perception that emotion and anxiety related to conversations about wealth transfer and estate planning have led to poor--if any at all--communication about the whereabouts of assets and other critical documents. Our study shows that this is simply not true. The real reason these conversations have not been had is due to inertia among family members; indeed, "haven't gotten around to it" was the number one reason given by both parents (52%) and adult children (41%) for not talking about the location of assets. As a result:

- Almost equal numbers of parents (32%) and adult children (33%) reported that they have not spoken to their child/parents about the location of financial assets for the purposes of wealth transfer.

- Roughly 37% of responding adult children said that they would not be able to locate their parent's critical financial documents in order to settle their parent's estate easily. (This assumes of course that they even know which documents are critical and which are not.)

- More than a quarter (28%) of adult children reported that if their parent(s) passed away, they would not know what to do or who to contact to settle their estate.

While some parents also cited privacy concerns (13%) as a reason for not having these conversations, our study found that both parents and children are open and willing to discuss the location of assets.

- Although 22% of adult children had the impression that their parents don't think they should know the location of their assets, only a small minority of parents (11%) substantiated the same sentiment.

- In fact, 42% of adult children and 32% of responding parents indicated that they would be more likely to discuss the eventual transfer of assets with their parents/children if a financial advisor initiated or led the discussion.

- In addition, 70% of parents and 60% of adult children want to get to know each other's financial advisor.

Next month, we'll explore how advisors can take advantage of the opportunities that these findings provide.

Chris Blunt is president of New York Life's Mainstay Investments unit and can be reached at chris_blunt@mainstayfunds.com.

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