How Advisors Can Stop Losing Clients’ Heirs as Clients

Building relationships with clients is a vital skill that many financial advisors have mastered or are, at least, well on the way to refining. But cultivating bonds with the children of clients as a strategy to retain them post-inheritance is an art most FAs woefully lack.

The numbers tell the story: in a survey of 1,000-plus investors conducted by MFS Investment Management in 2013, 75% of clients said their children had never even met their FAs. No wonder only 2% of children stay with their parents’ advisor, according to a PriceWaterhouseCoopers Global Private Banking/Wealth Management Survey in 2011.

Likewise, Fidelity as well as the Institute for Preparing Heirs say that 90% to 95% of offspring leave their parents’ advisors upon receiving their inheritance.

The United States is on the cusp of the largest wealth transfer in the country’s history: about $40 trillion will be handed down to the next generation by 2050. Clearly, FAs who don’t form bonds now with these beneficiaries-to-be are ignoring a tremendous opportunity.

“If advisors don’t adapt a strategy for retaining heirs as clients well before the wealth transfer occurs, they’re at risk for losing the assets. To have their businesses continue to thrive and grow, they need to engage the next generation,” says Ross Ozer, senior vice president, practice management and consulting, at Fidelity Clearing and Custody Solutions, in Boston.

What’s the secret to keeping the next generation from walking? Nothing magical or prohibitively difficult. All it takes to earn the children’s — and even grandchildren’s — trust is a substantial investment of time and effort starting early in the relationship with their parents.

Since studies show that the majority of heirs fire their folks’ advisors, it’s hardly surprising that less than a third of FAs focus on generational wealth services as a core offering, as Fidelity research found.

“If you wait until you go to the wake to introduce yourself to the kids, you’ve waited too long. You need to be the quarterback driving the process as early as possible,” says Kevin Ward, senior vice president, wealth management, of Ward, Linker, Hodges & Associates at Merrill Lynch, in Paramus, New Jersey, managing $750 million in assets.

Introducing yourself doesn’t mean just a hello and a handshake or high five. It’s demonstrating what you can bring to the table — the next gen’s table — years before the benefactors’ death.

“The whole idea is to [develop] a relationship before the parent passes away. It’s a process — a habit — that advisors need to build in,” says Diane Doolin, founding director of the Institute for Preparing Heirs and senior vice president/financial advisor of The Doolin Group at Morgan Stanley, in Pasadena, California.

The institute offers help with wealth transfer through family workshops and workbooks; and it holds advisor workshops at firms including Fidelity, Merrill Lynch and Morgan Stanley.

Initial interaction with the next generation should occur when potential heirs are in their teens or even younger, if indeed you’re an advisor to clients with school-age children.

Finding common interests is a perfect way to get the bonding ball rolling.

“The first thing I do is try to establish rapport,” says Brad Howell, senior vice president, wealth management, Howell Wealth Consulting Group of UBS Financial Services, in Long Beach, California.

Recently, a new Howell client was delighting in the news that her 16-year-old grandson had made the high school surf team. As it happens, a Howell family member and noted surf photographer had published a book on surfing. Howell immediately ordered a copy, asked his relative to sign it and sent it to the grandson.

“He was overwhelmed, and the client was amazed,” Howell says. “At this point, I’m not going to work directly with her grandson; but it’s the first impression he has of me.” It certainly made an impact and laid the groundwork for a simpatico connection.

Client Bonding

The key to retaining heirs’ assets is first bonding with clients. Encouraging them to open up about their life and family is the initial step.

“If I know that the client has children, my first question always is: ‘Tell me about your kids.’ And then I just sit back. It’s not intrusive. It’s listening carefully with EQ [emotional intelligence quotient] and learning what’s going on in the family,” says Mary Deatherage, managing director, wealth management, of The Deatherage Group at Morgan Stanley, in Little Falls, New Jersey. Her team of 11 manages about $2 billion in client assets.

“My goal is that when the mom dies and the money is inherited, it stays here. And it’s a rare case that it doesn’t,” Deatherage says.

One of the advisor’s methods is to introduce children to philanthropy — sometimes when they’re as young as 10 — by suggesting that they give, say, $1,000 to their parent’s charity of choice via a donor-advised fund. Deatherage also offers “Investing 101” to teens and 20-somethings, holds one-on-one stock-and-bond tutorials, welcomes college kids keen on a career in finance to shadow her team for a day and helps 13-year-olds invest some of their bar mitzvah or bat mitzvah money in stocks.

For adult children, Deatherage helps with 401(k) plan choices, gives portfolio and stock option advice — even if they have advisors at other firms — and paves the way for pre-nuptial agreements.

“The idea is that over time, we can influence the next generation that we’re so passionate about doing a good job for them and their family that we’ll exceed what they’re getting in their current relationship,” Deatherage stresses.

Career advice for clients’ college-age kids is a service that Howell extends. He also helps millennials secure mortgages and recommends that clients open Roth IRAs for children in this age group.

“When you show someone in their early 20s that, by making simple contributions for a number of years, they can, in many cases, have in excess of $1 million tax-free at retirement age, their eyes open up,” Howell says.

Advisors who create multigenerational practices are making sure that heirs get to know their parents’ advisors long before they receive their inheritances.

“I have three generations of ‘family webs’,” notes Peg Moore, managing director-investment officer with Wells Fargo Advisors, in Ann Arbor, Michigan.