4 ways to retain your client’s high net worth children

Only one in five affluent investors use the same advisor as their parents, according to the Cerulli Edge—U.S. Retail Investor Edition. The firm said financial advisors must reinforce the value of their services to clients both early in the relationship and in times of unique difficulty to strengthen and retain relationships for the long term.

Maintaining a relationship across generational divides is a ‘win-win’ for both investors and the advisory firm itself, Cerulli said. Young investors receive the benefits of an advisor who already is familiar with the family’s financial situation, and the advisor has a chance to preserve the account for the next generation.

Despite these benefits, Cerulli’s research shows more than 90% of affluent investors who use their own advisor did not consider their parents’ advisor in their selection process, and just 6% gave their parents’ advisor even the slightest consideration. The increasingly mobile nature of the younger demographic means they are more likely to switch advisors, unless the firm itself really gets to know them and their financial needs.

“While they may begin as a sort of ‘marriage of convenience,’ advisors can create long-lasting relationships with their clients’ children,” said research analyst John McKenna. “Advisors whose clients have financially interested children should work with them—either helping them with their own financial plans or directing someone else within the firm whose life experiences align with these clients to join the advising team,” he added. “For parents, having family-level conversations can smooth out potential future trouble spots in terms of inheritance or financial support, should misfortune befall either generation.”

“More than ever, involvement in financial discussions for wealth planning is becoming a ‘need to have’ rather than a ‘nice to have,’ and with an increasingly affluent millennial demographic, advisors cannot afford to squander such business-expanding opportunities, ”McKenna said.

Creating connections that count

So, how should advisors build meaningful relationships with these potential clients? Three financial advisors recently shared some of the tactics they are using to build and maintain relationships with their clients’ children– and increase their chances of serving their financial-planning needs.

1.  Family Involvement: As an advisor at EP Wealth Advisors, Laura Knolle said that she is committed to fostering family involvement and education through accessible platforms such as Zoom, ensuring inclusive client meetings. “Our annual 'Friends & Family Day' event provides NextGen members with complimentary financial planning insights, while qualified clients benefit from estate plan reviews that often lead to comprehensive family discussions,” added Knolle, a vice president and advisor at EP Wealth Advisors.

2. Webinars & Events: The company also offers tailored webinars and inclusive live events, such as its upcoming 25th anniversary BBQ, where clients are encouraged to involve their children. “This inclusive approach has created a community where many younger family members are now valued clients, showing our commitment to helping families succeed at EP,” Knolle said.

3. Include your clients' children: John McClellan, chief risk and business officer at Axtella, said that it is important to build relationships with the next generation now. “Ask your clients if their children can be included in occasional financial-planning meetings and offer separate consultations for the children to talk about their own financial situation and goals,” he said.

When the client passes away, McClellan said that advisors should offer to meet with the heirs to educate them regarding the potential inheritance. Oftentimes, children are unprepared to handle an inheritance or the potential tax implications. “During this difficult time, be as supportive as possible, and help explain next steps,” McClellan said.

McClellan also pointed out that it is important for advisors to remember that some grieving children might not be ready to discuss finances or make important decisions. “Once they are ready, you can also talk about the value you brought to their parents’ financial well-being, and how you can assist them going forward,” he said. “By building trust and developing relationships with children of clients now, you can help ensure a smooth transition during a difficult time and increase the chances of retaining the next generation of clients.”

Making use of a Donor Advised Fund

4. Donor Advised Funds: Another advisor, Grant Chaney, said that their team has established a unique, repeatable process of connecting with the children of their clients by incorporating them into the family’s charitable planning vehicle, most commonly a Donor Advised Fund (DAF).

The firm first syncs up with the parents to determine an appropriate funding of the DAF, explained Chaney, who is senior vice president—financial advisor with RBC Wealth Management. Ideally, he said, funding is sourced from appreciated public or private investments to remove unrealized capital gains from the family’s portfolio and completed in a particularly high-income tax year or across multiple high-income tax years.

“We then call an initial meeting with the parents and kids to assign responsibilities within the family, discuss annual giving goals, and review the investment portfolio, discussing concepts such as risk vs. return, time horizon, dividends and interest, cash flow planning, etc.,” Chaney said.

“We’ve found that a DAF creates a controlled medium for families to discuss their values in a rewarding way and provides financial education for the next generation,” Chaney added. “Unlike giving directly to charities periodically from cash or securities in the client’s name, the DAF introduces the added element of managing a portfolio to persist for multiple generations, much like a university endowment. Parents often ask their children to research charitable organizations and present their recommended gift recipients at least annually.”

Chaney’s firm has found that selecting the end recipient or recipients is an easier process when the money is irrevocable. This means that it has already been set aside for charitable purposes and cannot be called back into the client’s estate. “Family governance meetings can be a challenge, especially when topics such as inheritance and trust structures are discussed,” Chaney added. “Involving the next generation in charitable planning through a DAF is a great way to introduce the role of a financial advisor and unite the family in their charitable-giving efforts.”

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