Intergenerational Advice Is Far From a Given

Surveys show a majority of advisers believe they will continue to manage their clients’ money for multiple generations, even if they don't know the heirs. 

“In a relationship-focused business, advisers must make time for building better relationships, not just better businesses,” says Everplans co-founder and co-CEO Abby Schneiderman.

Schneiderman’s firm considers itself an “online estate and legacy planning platform.” As an enterprise solutions partner for defined contribution (DC) plan specialists and wealth management advisers, Everplans helps advisers help clients organize, store and share legal, financial, health care and personal information, “so loved ones can find it when they need it.”

In her role, Schneiderman naturally spends a lot of time thinking about the transition of wealth between generations—and in fact, the firm just put out a joint study with Cerulli Associates, measuring the success advisers have had in managing wealth across generations. Suffice it to say, advisers aren’t doing nearly as good of a job building intergenerational client relationships as many may think.

Of the more than 200 financial advisers surveyed, the vast majority (90%) believe they will continue to manage at least a portion or all of the assets once passed on to their clients’ children. This is despite the fact that only 7% of clients’ children say they know their parents’ adviser personally.

“Advisers inherently understand that they should be focusing on the next generation, but turning those good intentions into action is sometimes easier said than done,” Schneiderman adds.

In one positive finding, nearly all advisers (95%) feel they have a relationship with most of their clients’ spouses; and about two-thirds of their clients’ spouses are formally considered clients of the adviser. Against this backdrop, 75% of advisers surveyed remain confident that should their clients pass, spouses will keep assets with the adviser, even if they weren’t the primary client.

“What if the money is passed to a grandchild? Half of all advisers believe the assets will stay right where they are even though 92% are wholly unacquainted or only quasi-acquainted with their clients’ grandchildren,” Schneiderman warns.

NEXT: Boosting communication across generations 

Donnie Ethier, associate director, high-net-worth wealth management at Cerulli Associates, says many advisers are guilty of “wishful thinking” when it comes to holding onto clients’ assets during the transition of wealth from one generation to the next. 

“Advisers today are under a tremendous amount of pressure—regulatory concerns, performance and returns, and just the general stress of running a business,” Ethier says. “These numbers should be a harsh reminder that while everyone is facing increased competition, it's important to maintain your relationships if you wish to continue to grow your AUM.”

This is doubly important because for years now the registered investment adviser (RIA) industry has seen stalling growth. Data provided by Fidelity shows organic growth among RIAs dropped to 6.7% in 2015, the lowest level in the last five years and continuing a downward trajectory. Just as concerning, median revenue yield dropped 4 basis points to 69 bps in 2015, after years of stability. Clearly, to promote organic growth advisers will benefit from making the most of the trusted relationships they already have.  

The Everplans/Cerulli research goes on to suggest advisers do not collaborate enough with clients' other professional service providers (attorneys and accountants, for example). This can lead to difficulty when a client dies or when wealth is otherwise being transferred between generations.

“After a death, it can be a time consuming task to coordinate and organize affairs. On average, advisers spend 16 hours compiling documents, consulting with other professionals, and distributing assets when a client passes away,” the analysis shows. “For larger firms with more than $500 million AUM, the time it takes to assemble key documents increases to an average of nearly 22 hours. The highest number of hours by a single advisory firm, as indicated in the survey responses, was 700 hours.”

Firms like Everplan suggest the whole process of wealth transfer can be simplified dramatically with advanced planning and communication—saving time and resources for the adviser while offering some measure of support and predictability to a deceased clients’ spouse/heirs during what can obviously be an uncomfortable time.  

NEXT: What a quality intergenerational relationship looks like 

Bill Leeb, president of Financial Council, Inc., an advisory firm headquartered in Towson, Maryland, began offering estate planning and wealth transition services for clients in 2015—supported by Everplans.

By engaging more with clients on wealth transfer issues, the firm is “able to dig even deeper in our efforts to build trust and take a 360 degree approach to our clients' financial lives,” Leeb says. “Now, our involvement as their financial adviser prompts deeper, forward-thinking conversations that become as natural, and as critical, as any of our financial discussions.”

Leeb feels that advisers should view the process of getting to know client heirs as a natural and necessary extension of the work they already do. For example, advisers commonly document many aspects of their clients' financial lives, including held-away assets (89%), outstanding mortgages/loans (79%) and banking/credit card information (55%). Why not seek out information about clients’ heirs and promote their familiarity with the firm and the relationship their parent and family has built?

“There are some topics advisers don't routinely address as a part of their estate planning process but can be critical information for heirs, such as access to utility bills and digital accounts or details of funeral preferences,” Leeb suggests, noting support from Everplans has helped his advisory firm make this thinking a reality.

“Some advisers have found the key to developing a business relationship with the next generation of clients is to simply ask,” Schneiderman concludes. “Other top tactics advisers utilize to bridge the relationship gap include seeking to involve future generations from the outset of the client relationship, hosting informational sessions with children of current and potential clients, and focusing on understanding and managing family wealth.”

NEXT: Understanding Millennials’ preferences can be tricky 

When it comes to anticipating the needs of Millennials and younger clients who stand to inherit significant amounts of wealth from Baby Boomers, the TD Ameritrade 2016 Millennials and Money Survey suggests the youngest age group of investors “may have more in common with their Great Depression-era counterparts than their Boomer parents or grandparents.” Advisers should take this into account when creating new service offerings and attempting to protecting client relationships across generations.

Of the more than 1,000 Millennials surveyed, a solid majority (62%) identified themselves as proactive savers, while 80% suggest they have some type of formal budget. The vast majority does not yet feel financially secure, but most (85%) anticipate reaching financial stability and independence in the foreseeable future, either through their own savings efforts or due to anticipated inheritance or other potential wealth sources.

According to the TD Ameritrade research, Millennials’ affinity for savings means most (77%) would “stash an extra $1,000 in a savings account instead of the stock market.”

“The Silent Generation and Millennials came of age during a major financial crisis, which increases the propensity to save and financial conservatism,” explains Matthew Sadowsky, director of retirement and annuities at TD Ameritrade. “Further adding to Millennials’ financial anxiety is the economy, student debt, and escalating peer influence from social media.”

Obviously, advisers who can create a sense among clients’ heirs that they can provide solutions to these challenges will do better at retaining AUM during times of transition.