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Why Should You Worry About Generational Wealth?

By Ray Sclafani | September 10, 2015

I’m not sure how or when it happened, but my penchant for bands like the Red Hot Chili Peppers and FooFighters is now met with a somewhat dismissive head shake and a barely audible sigh from my college-aged son – a signal of my clearly misguided musical appreciation. Come to think of it, it’s the exact same reaction I had 30 years ago as the songs of Tony Bennett and Dean Martin slowly tortured me.

Let’s face it; it’s a generational rite of passage to rebel against your parent’s taste in music. So, why would their taste in financial advisors be any different? For years now, countless whitepapers and industry studies have sought to quantify the magnitude of the “impending intergenerational wealth transfer.” It’s talked about in terms of being a monumental asset-gathering opportunity…a tsunami of money in motion. What nobody seems to be talking about, however, is the equally monumental risk involved.

The facts speak for themselves. According to an online survey conducted by U.S. Trust, just 47% of those multimillionaires ages 18 to 34 reported using the services of a wealth manager, broker, financial planner or banker. Most inheritors of wealth in this age group will switch advisors or do it themselves once they take possession of their inheritance. Given this clearly visceral behavioral impetus for change, advisors will no doubt face an uphill battle holding on to assets as the next generation takes possession of them.

In all likelihood, no amount of face-to-face interaction between you and your clients’ children will offset or overcome their innate desire to fire you and chart their own course. It’s no more probably than a father successfully convincing his son to the superiority of Mel Torme over The Who.

There’s just no getting around the fact that the deck is profoundly stacked against you. So what do you do?


Inter-practice and intra-practice client migration

Depending on the size of your firm, the fundamental key to successful generational asset retention lies in either an inter-practice client migration or intra-practice client migration strategy. Simply put, your best opportunity for holding on to the next generation is to introduce them to “a new music” in the form of an advisor they can call their own.

This individual will likely be a younger advisor in your firm, someone not only close in age to your clients’ heirs, but ideally with an approach and style that’s different from your own. The goal is to create maximum separation between you and your clients’ offspring in an effort to foster a sense of independent decision-making.

For sole practitioners, you may want to contemplate forming an alliance with a young emerging practice where you can receive ongoing compensation on the clients and assets you refer. While not an optimal revenue solution, given the high rate of advisor switching it just may be your best available option. What’s more, it’s an approach that establishes a beneficial working relationship with a partner firm – one that may offer an ideal succession plan for realizing the maximum value of your business down the road.

Granted, the tidal wave of generational wealth transfer hasn’t materialized as quickly as most pundits anticipated. But it IS occurring and will continue to gain momentum for years to come. Understanding and addressing the behavioral issues associated with this phenomenon will be paramount to the long-term viability of your business.


Coaching Questions from this article:

  1. Think about your firm’s current approach to working with your clients’ children and heirs. Are there ways you can more actively engage the next generation? 
  2. Analyze your team structure. Are you assigning relationships to younger advisors solely based on size? Might there be a way to engage younger advisors to assist with the next generation of your A and B clients?
  3. Look across your network. Are there any younger practitioners who might fit as a generational referral destination? How might you propose structuring a referral agreement with them?


Onboarding Strategies

Topics: Trust Relationship Management Millennials

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