Dead Wrong About Inheritors

Financial advisors hoping to build more profitable businesses are often fascinated with the potential of the inheritors market. Such advisors frequently cite predictions that from $10 trillion to over $100 trillion will be handed down by mid-century. Advisors enrolled in CEG Worldwide’s coaching program share this fascination, and frequently tell us that they want to retain certain smaller clients — even those who are clearly unprofitable — because at some point down the road some of these clients might receive large inheritances. Sometimes these advisors know the likely size and scope of these anticipated inheritances, but often they have little concrete evidence as to potential likelihood or size.

When asked for advice about the inheritors market, we turn to the extensive research performed by CEG Worldwide’s senior managing principal, Russ Alan Prince. The insights provided by this research have an unmistakable bottom line: While there is indeed a substantial opportunity in the inheritors market, it’s nearly the exact opposite of what most advisors think it is.

Inheriting a Mistaken Belief

One widely held industry belief is that if the client of a loyal and competent advisor inherits a substantial sum, that client will probably continue to work with the advisor. After all, if the advisor has stuck with the client through thick and thin, then why wouldn’t the client likely choose to maintain a functional and well-developed relationship? Empirical research, however, clearly shows that the vast majority of those who inherit a substantial amount switch advisors. As the first chart shows, of 334 inheritors surveyed, roughly 80 percent switched advisors after their ship came in.

A related mistaken belief is that it is worthwhile for advisors to cultivate the adult children of their clients, that is, adult children who are some day likely to inherit their parents’ wealth. Based on this belief, many advisors hold “family meetings” that include the adult children, or have a more junior advisor attend directly to them. But here again, the research shows that this is misspent effort.

What drives the high percentage of switching over? As the second chart shows, affluent inheritors almost universally want to work with advisors who specialize in investing for the affluent. This makes perfect sense: Individuals who inherit substantial amounts want to work with advisors who are already experienced in serving the needs of the affluent, and who unmistakably know what they are doing. If you don’t already mainly serve affluent investors, then any substantial inheritors are highly likely to leave you to start their “new life” with an advisor who already serves a wealthy clientele.

But is it possible for an advisor to lower the odds of an inheritor moving on? If one or more clients are likely to inherit substantial fortunes, might it not make sense for an advisor to hold onto those clients, even if they are unprofitable, given the possibility that one or two might “hit it big” with an inheritance? The answer is a resounding “no.” Don’t waste your time on a business plan that has an 80 percent chance of failure. Instead, consider how you can position yourself now to work with clients who have inherited substantial sums. That is, if so many substantial inheritors switch to a new advisor, then how can you position yourself so that you are one of those advisors?

Specializing in the Needs of Inheritors

To be in the right position to attract the business of inheritors, actively position yourself as a specialist serving individuals who have inherited substantial amounts. By specializing in this niche, you will become better at serving those who have inherited, which over time will enable you to provide better service and counsel, thereby eventually bringing you even more inheritance-related business.

More specifically, CEG Worldwide recommends the following three-step process for tapping into the inheritors market: