Keeping the Next of Kin as a Client

By Eric Kinaitis

An article in InvestmentNews provided a warning to many financial advisors: a $30 trillion wealth transfer wave will be occurring over the next several decades and many advisors will see their asset base erode to nothing.

Why? Because the advisor never established a relationship with the heirs of their current clients.

When their current clients die, the heirs that benefit from this wealth transfer will regard the advisor as a stranger that they do not know and don’t feel they have a need for that advisor and their guidance.

A survey from InvestmentNews measured the bad news: over two-thirds of children fire their parent’s financial advisor after they inherit their parents’ wealth.

For those financial advisors with an eye on selling their practice someday, having a plan to retain assets from one generation to the next will determine if they get the sales price that they want.

John Furey, owner of consulting firm Advisor Growth Strategies, was quoted in the article: “When  calculating a … firm’s value, experts factor in the age of its clients and discount businesses whose clients are predominantly in their 70s and above.”

“Firm valuations will be higher if the advisor can show the business has a relationship with the children of their older clients, such as the younger generation having accounts with the advisor. Experts also look at the advisor’s track record of retaining assets after clients die.” Advisors who can’t prove that they have a plan to retain assets during this generational shift will find that their business is not worth what they hope.

So how can advisors build a better relationship with the heirs of their current clients? Estate planning and charitable planning are two areas where an advisor can engage in the bridge building needed.

A donor advised fund is a tool where both concepts are able to intersect. It allows a financial advisor to become privy to the details of what a client wishes to do at the end of their life. The estate plan allows the advisor to know/meet the other parties involved, an understanding of the entirety of assets that exist (even those beyond what the advisor currently manages), and have a clear view of the succession plan.

A conversation about charitable planning allows the advisor to engage in deeper thoughts on the type of legacy that their clients want to leave. Specific guidance on the questions to ask and thoughts on how to give strategically can position the advisor as a valued expert beyond the dry basics of tax issues and portfolio gains. Clients may appreciate learning about the varied ways that they can engage in supporting their favorite causes through the use of a donor advised fund .

Are you and your practice prepared to ride the wealth transfer wave successfully? At American Endowment Foundation, we look forward to helping you navigate these waters for the benefit of you and your clients. Contact us or call at 1-888-660-4508; we look forward to assisting you.