The wealth transfer process is complex, with financial as well as emotional matters that must be sorted through. But financial professionals can take steps to help ensure clients and their heirs are prepared. Retirement Director Ben Rizzuto outlines what he believes are the three key steps to success: preparation, empowerment and engagement.
Over the past several years, we in the financial services industry have spent considerable timing talking about the “Great Wealth Transfer,” through which trillions of dollars will be passed down from older Americans to their heirs. I’ve seen all sorts of stats on this transfer, with the most recent projecting that your clients’ heirs stand to inherit $68 trillion dollars from their baby boomer relatives by 2030.1
A recent article noted that financial professionals can expect to be “slammed” with work due to this impending transfer of wealth.2 While that may seem obvious, most have not considered the fact that this phenomenon has the potential to “slam” not only advisors, but also families and heirs if they are not prepared.
As a financial professional, how can you help ensure that everyone (including you) is as prepared as possible when it comes to the transfer of wealth? Not only will there be a significant amount of financial planning involved, but before that even starts, a great deal of thinking, planning and talking will need to occur. Throughout your career, you’ve likely seen cases and worked with families where a lack of planning or conversation has led to chaos and a less-than-optimal wealth transfer outcome. It may also have led to parents not having documents in place or heirs not being prepared to receive wealth. Or maybe it affected your practice.
That lack of forethought can and has caused a significant number of wealth transfers to collapse. In fact, research has shown that 70% of wealth transfers fail.3 That failure is defined as the removal of assets, involuntarily, from the control of the beneficiary. While it can sometimes be attributed to taxes, in most cases it is due to a lack of trust, forethought and preparation.
So how can all three groups that make up the wealth transfer process prepare?
We feel that it may be as easy as 1, 2, 3.
1. Prepare Yourself and Your Practice
While many would think wealth transfer is only about families, financial professionals must remember that there are important practice and personal considerations they need to think about to ensure they are prepared for the future.
The main goal of wealth transfer is having assets live on into the future. The question for advisors is, do they want their practice to live on over future generations? If so, lead advisors need to ask themselves who will serve clients after they’ve retired and how they would want them to be served. This means thinking about succession planning, bringing on a partner, hiring younger advisors, creating service processes and standards, and making sure current clients understand the plans you have in place.
More specifically to the transfer of wealth, financial professionals need to think about the new set of clients – your clients’ children – this transfer will create. So ask yourself, as the lead advisor, how will you service another set of clients when you’re already likely working near full capacity? And if you don’t have the bandwidth, who within your practice is best suited to meet with these younger clients? With this question, remember to not only consider time but also your ability to personally connect with new, younger clients.
2. Empower the Families You Work With
When it comes to discussing wealth transfer with clients, the first step is to think about how you’re going to bring up the conversation. Some families don’t feel it applies to them, while others may already have trusts and wills and tax strategies in place. Either way, it’s important to remember that the non-tax issues are still important. Plus, it’s not as if everything can be ironed out with one conversation; an ongoing process will need to be created and families and heirs will need to communicate consistently to ensure everyone is on the same page.
This leads us to one of the main hurdles financial professionals face when it comes to wealth transfer: the fact that some families assume they aren’t “rich enough” to even have this conversation. While every family’s level of wealth is different, families must understand that when they pass away, something likely will be left to their next of kin. In fact, the average inheritance has risen in value from $169,000 in 1989 to $295,000 in 2016 – an increase of 75%.4 Furthermore, while the assets being transferred could be money, they could also be a home, family heirlooms or even digital assets.
So how do we get families to understand that conversations around wealth transfer do in fact apply to them? Recounting stories of working with other families in similar situations can be helpful. Maybe you’ve worked with families in the past who felt the same but realized that, yes this does apply and, yes there are a lot of things they needed to discuss.
Helping families with that initial realization starts the empowerment phase, but we need to continue to help clients feel comfortable discussing these sometimes uncomfortable issues. Facilitating family meetings is one way to not only help your current clients but also develop relationships with their heirs.
3. Engage with Clients' Heirs and Younger Generations
Engaging with your clients’ children, grandchildren and other relatives is the last step in creating an ongoing wealth transfer conversation with families. If these conversations don’t occur, assets that you’ve managed for years could simply walk out the door when they’re transferred to heirs. Research has shown that within 12 months following a transfer of wealth, heirs will change advisors up to 95%5 of the time. Why? In many cases, it is due to a lack of relationship. If heirs have never met their parents’ financial professional and don’t understand what that advisor does or how that person can provide value to them, why would they seek out that advisor’s services?
The only way to maintain those assets is to engage with the younger heirs of your current clients. This could include having parents invite their children to an annual review, reaching out to the heirs to introduce yourself or simply adding them to your email distribution list. But it also means understanding the issues that they face. For younger folks, this could be issues like student loan debt, career trajectory or an interest in sustainable investing. Either way, these future investors need to understand what you do and the value it provides – not only to their parents, but also to them.
The wealth transfer process is complex. Sure, there are financial and tax issues to discuss, but there are also emotional, sentimental and values-based issues that need to be sorted through. As you know, this is not a subject that can be solved in one meeting. It is a conversation that occurs over years, involves many different parties and requires your clients, their heirs and you as their financial professional to work together. It is a process that requires preparation, empowerment and engagement. The hope is that by creating this process, you can serve as both this generation’s and future generation’s trusted wealth manager.
We’ve created a new resource to support you and your clients on this journey. I encourage you to explore it to find the tools you need to Prepare, Empower and Engage yourself and your clients for wealth transfer. If you need help with any of these steps, please don’t hesitate to contact me directly at firstname.lastname@example.org.
1A. Garcia-Amaya, “How To Plan For A Wealth Transfer.” Forbes, March 2021.
2V. Thomas, “The Great Wealth Transfer to slam financial advisers.” Spokane Business Journal, March 2021.
3FUSE Research Network and Janus Henderson Retirement Strategy Group, 2015.
4“Inheriting Retirement Security: How Inheritances Help Households Afford Retirement.” United Income, November 2019.
5J. Wollman Russoff, “How Advisors Can Stop Losing Clients’ Heirs as Clients.” ThinkAdvisor, March 2016.