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How Advisors Can Stop Losing Clients’ Heirs as Clients

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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.

Moore starts on the path to engaging with beneficiaries when she asks clients over age 55 to indicate whom to contact should they suffer a significant health issue or other serious problem in the future.

“We talk about authorizing that person to [give] us information. So if the client doesn’t seem quite themselves, we have permission to reach out to find out what’s going on,” Moore says.

Developing deep, rich relationships with clients goes far to gaining the trust and loyalty of succeeding generations.

Last summer, when a Moore client’s daughter remarried and simultaneously lost her job, her mother urged: “You should go and see my people,” the FA recalls. The daughter twice met with Moore, who before long received a call: “[My husband and I] would like to become part of your client family because you’ve done such a great job with my parents. When my mom and dad go, I know you’ll be able to help me,” Moore shares.

Delicate Subject

Regrettably, most clients avoid discussing inheritance plans with their children. In fact, nearly half (46%) of benefactors had not done so in a UBS Wealth Management Americas survey of more than 2,800 high-net-worth investors in 2014. Why? Twenty-seven percent said they don’t want their children to feel entitled to wealth. Thirty-two percent said they don’t want their offspring to count on an inheritance.

Reluctance to talk about asset transfer creates a challenge. But smart advisors are encouraging clients to hold family meetings for that purpose. Often the FA sits in as a guide.

“We tell clients, ‘It’s been amazing to watch other families have these meetings so that the kids know what’s happening and are able to thank their parents while they’re alive,” says Douglas Linker, senior vice president, wealth management, of Ward, Linker, Hodges & Associates at Merrill.

It’s unnecessary for parents to reveal planned bequests in specific dollar amounts, advisors say. However, down the road, disclosing explicit asset levels becomes practical.

“As the parent ages and possibly needs to enter a skilled care facility, I tell my clients it’s time not to hold that information to their chest anymore,” says Lynn Faust, senior vice president, investments, The Faust-Boyer Group of Raymond James, in Greer, South Carolina, a suburb of Greenville. “I explain that the children need to know [how much] to anticipate when they do their own financial planning.”

Supplying financial literacy tools is an effective way to work with the next generation. Faust, for instance, teaches the stock market in the Greenville County Academic Program. She even talks money at her office with clients’ grade school youngsters or grandkids.

In springtime, Faust throws a luncheon for high school grads, at which she discusses college finances. And she takes college grads out one-on-one for an overview of mortgages and wills.

“I’m establishing credibility long before they need me. At my annual meetings, I ask parents: ‘If you die today, can your children pick up the pieces?”

Inviting clients’ adult children to portfolio reviews and even offering reviews of their own portfolios are excellent ways for heirs to get to know you. This tactic is used often by Dawn Blocker, a financial advisor with Edward Jones, in Mesa, Arizona.

“Most of our clients want to live comfortably in retirement and then pass their legacy on. So we always ask their children: ‘Do you have a plan designed to withstand a major [negative] life event?’” Blocker says.

Because more than half of Blocker’s clientele is 60 or older — the age range at risk for diminished cognitive capacity — she emphasizes the need to meet their families.

Along the same lines, the Ward, Linker, Hodges team always tries to interface with both husband and wife of married clients. It’s a prelude to connecting with their offspring.

“One of the best client-acquisition strategies is sitting at a table with a couple and asking, ‘If something happens to you, what’s the plan?’ That usually leads to ‘What’s the plan for your kids?’ This makes it easier to engage the children,” notes Noel Hodges, senior vice president, wealth management, of the Merrill group.

The route to retaining clients’ beneficiaries is “to dig deeper and deeper — to get entrenched in those relationships,” Ward says.

Suppose, however, that the parent and child are estranged, yet the client’s assets will pass to them. How does an FA generate rapport with the child if the parent-child relationship is broken?

Such estrangements are far from uncommon, Deatherage has found. For certain clients, she hires family dynamics specialists — essentially therapists — to set up meetings.

“We’ll refer them to somebody,” Deatherage says, “but then I’m hands-off because [what they discuss] is private.”

After the estate transfer to an estranged heir, Howell offers what he calls a “second-opinion service,” wherein he poses 50 questions in 90 minutes.

“We get them talking to find out what’s really important to them. I look for gaps where I can make a tremendous improvement in their lives,” Howell says.

Obviously, failing to engage with progeny early in the client relationship allows a huge opportunity to retain millions in assets to slip right through your fingers.

However, “if you give clients a pathway to involve their children, you’ll be involved too,” Diane Doolin says. “In my own practice, the focus involves the future success of my clients’ children too. It’s not just about Mr. and Mrs. Jones.”


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