Inheritors likely to keep family advisor if relationship established early

Image of a large family gathered around a desk with a financial advisor, with a piggy bank sitting on the desk. Inheritors likely to keep family advisor if relationship established early.

By Ayo Mseka

A recent study of inheritors found many who were introduced early on to their family's advisor went on to work with that advisor.

The Nuveen Wealth Inheritor Research Study also offered some insights into what inheritors want. They want to achieve multiple competing goals with their wealth—personal, family, and community-oriented goals. In addition, almost nine of 10 gave top importance to having enough resources to support their retirement lifestyle and achieving financial stability and independence.

However, nearly six of 10 want to pass wealth to future generations and fund the education of children or grandchildren, and half want to give to charity or fund a financial legacy.

Inheritors seeks additional sources of advice

Inheritors are also actively looking for financial advice from many sources. Though financial advisors are the top choice for advice and education (65%), many inheritors also rely on:

Family or friends (60%)
Online research or trading sources (53%)
Personal finance news (44%)

Only 19% rely of them rely on robo-advice.

Although advisors are the top source of advice for inheritors, they will not fully outsource management of their wealth to them. According to the survey, nearly seven of 10 inheritors working with an advisor prefer to personally oversee some aspects of their financial plan.

"Advisors should position themselves as advice orchestrators, overseeing the client's overall wealth and planning, and coordinating the efforts of other specialists," said Joy Crenshaw, head of global sales & advisor development at Nuveen. "We believe advisors can create a multi-generational pipeline of clients that can help fuel their practice growth."

Success factors

As they look for ways to hold on to inheritors, advisors should keep the suggestions from Scot Macfarland top of mind. According to Macfarland, who is practice management consultant with Momentum Independent Network, the key points he provides to his advisors deal with education of the issues to the older and younger generations.

“That generally means that providing support to the youth as they mature is the best way to ensure that the relationships stay. If the advisor meets the younger generation for the first time in a time of crisis or change, there is no basis for trust, and the clients are more likely to move on,” he said.

Here are ways in which advisors can systematically build trust in these long-term relationships, according to Macfarland:

1. Offer an education session for beneficiaries of your largest clients’ accounts, which may include:

A group session on the basics of finances
A lunch to discuss goals or financial-legacy issues. “The younger generation of your wealthiest clients need to understand the responsibility and the stewardship required of them prior to being given the benefit of the finances. Frequently, the younger generation needs help with these lessons, because they were not responsible for creating it,” he said

2. Ensure that you can manage the assets of the younger generation. That may include:

Reviewing their 401(k) or other employer benefits
Offering smaller investment accounts for these younger generations
Having a different investment strategy. Many of Macfarland’s advisors have a different managed-account strategy for the children than the parent, e.g., several specialized managers for the parent, and a mutual fund strategy for the children due to cost and financial complexity.
Different generations frequently have different insurance needs.
Working on their financial plans.
Assure the clients that their situation is confidential and disclose any potential conflicts as they arise.

3. Ensure that the older generation discusses estate planning with their children and other inheritors. “This means that they know how the parents’ estate plan works,” he explained.

Also, advisors should ensure that the younger generation has their estate plan in order. Anyone over the age of 18 should be completing their documents, including college students.

4. Some more seasoned advisors partner with a younger advisor. “This can provide many benefits, such as transition plans, additional business support, etc.,” he said. “It also offers the voice of a younger advisor and the feel of a more discrete relationship for the generations.”

5. If there is an irrevocable trust involved, the advisor should become familiar with the family dynamics, and see if a corporate trustee is warranted, Macfarland said. This will ensure that family governance is followed, save the advisor from fiduciary issues that may arise, and may ensure that there is a legally defined investment relationship. Advisors can contact their corporate trustee services for more information.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].