In the context of wealthy families (HNW) there is a common expression: “from shirtsleeves to shirtsleeves in three generations.” Wealth is created in the first generation, protected in the second, and spent in the third. Some studies suggest that only about 10 percent of wealthy families successfully maintain their wealth beyond this point.
True or not, poor communication between the head of the family and the younger generation can lead to a loss of wealth over time; This can be particularly problematic in the estate planning process. But again, communicating with trusted advisors comes into play. According to Accenture Consumer Wealth Management ReportNearly 90 percent of HNW investors surveyed said the communications they receive from their advisors are “too general.”
These insights equal opportunities for financial advisors. If you can combine an understanding of the strategies and product solutions these clients require with a personalized approach to managing HNW family dynamics, you will be well placed to help wealthy families successfully transfer assets to heirs and theirs to preserve heritage for future generations. Here are some tactics to consider.
Get to know your customers: What makes them tick?
To offer this personalized approach, you need to understand more about the motivations, biases, and other characteristics your customers bring to their relationship with you.
How your clients achieved their fortunes will feed into the advice you offer. Have you built a business and sold it for a significant sum? They may need help adjusting to their new wealth. Did you inherit your fortune? They may need your help in preserving them and passing them on to the next generation. Has your family always been rich? They may appreciate creative solutions to expand their charitable interests.
Another element to consider is generational demographics. Millennials and Gen X millionaires are likely to think differently about money and investing than members of the Baby Boom generation. And all the things you’ve heard about younger investors — their familiarity with technology, their focus on values-based investing, and their risk profile — will add another layer to the process.
Other questions that will help you get to know your HNW customers better include:
- –Where did you grow up and what was it like?
- –What money messages did you learn as a child?
- –Was there a pivotal turning point in your life that changed your attitude toward wealth or success?
- –What money messages have you passed (or plan to pass on) to your children?
- –What would you like future generations in your family to know about your past and your goals?
☆ Pro Tip:Use the information you get about existing customers to create a series of customers HNW Customer Personalities to help you target more of those ideal customers. |
Reveal values: The family mission statement
The last question can help you move from individual to family values. “Sometimes, as a consultant, you address immediate concerns and develop planning ideas [for] the key customer,” said Seth Renaud, ChFC®, AIF®, President of CIG Private Wealth Management. “As your planning conversations open up and evolve, you realize that some concerns, realized or unrealized, extend beyond their lifetime and extend to the family.”
While estate planning sets out what assets will be passed on, estate planning is a more holistic approach that considers the knowledge, traditions, philanthropic goals, and investment philosophies that an HNW family wishes to pass on to future generations. Think of it as the family’s mission statement.
To help your customers articulate those intentions, keep asking probing questions like these:
- –What is important in your daily life?
- –What values do you value? What values do you want to pass on to your children, grandchildren and future generations?
- –Are there specific organizations or charities that are important to you?
- –How would you like your family to be remembered?
This process is not about money, at least not initially; It’s about what the family stands for. Encourage all family members to participate in this discussion, and then work to find common themes to include in a shared mission statement.
Bringing everyone together: The family reunion
One of the best ways to help families talk about their values is to start the family reunion. The advantages are twofold:
1. You act as a trusted advisor to the whole family.
As the facilitator for the first and future family gatherings, you are the person responsible for ensuring open and transparent communication between family members. You will also be the one the family can lean on to help them live up to their mission statement.
2. You get early access to the next generation.
The Accenture report also found that 51 percent of HNW investors would change advisors after receiving a large sum of money, such as through an inheritance or the sale of a company. By strengthening relationships with your client’s heirs, you now have a better chance of keeping the assets in your company.
Here’s how you might approach the family reunion:
Do your homework. Because multiple generations and personalities may be involved, your ability to handle the dynamics of the HNW family is vital. As you prepare for the first meeting, work with the family matriarch and patriarch to identify what they would like to share. It can be useful to focus on goals and generally talk about how assets can flow to the next generation, and save specific dollar amounts for later discussion.
Renaud has worked with an HNW couple who will eventually bequeath sizable assets to their heirs, each of whom will likely have different challenges adjusting to this sudden wealth. Having studied the family dynamics portion of the Certified Private Wealth Advisor® (CPWA®) program, Renaud knew that a family reunion could be a useful strategy for these clients. “It was a foreign word to them,” he said, but it helped them see “the intricacies and the reality” of having their heirs inherit so much money.
Find out the guest list. Will it only be immediate family members? Should spouses or children participate? Remember, it’s never too early to talk to heirs about estate plans.
Decide on the venue. Choose a place where everyone can feel comfortable talking. This can be an informal setting like the family home or a more traditional setting like your office or boardroom.
While the goal might be for everyone to attend the meeting in person, that might not be possible. Therefore, you need to include family members in the meeting via video conference, which could make your office the best place.
☆ Pro Tip:Agree on the “rules of engagement” for the meeting. For example:
|
Plan challenges. Be aware (or wary?) of family dynamics and possible dysfunctions that may play a role in meetings. Remember, Renaud said, “Wealthy people are just people. Yes, they have financial complexities, but their family complexities are common to all people.” For example, if there is sibling rivalry involved, or one child is involved in the business and another is not, you need a plan for how to deal with those issues.
Raise. The role of the counselor in the family reunion is to guide and enlighten. A sample agenda might include a discussion of family wealth and values, estate planning documents, the family’s charitable purpose and role in the estate plan, and elder care decisions.
Be prepared to explain terminology and answer questions as you walk your family members through the agenda. For example, be prepared to address the rationale behind decisions when assets are not distributed equally, when trusts provide additional protections for specific participants, or why assets are held in trust rather than distributed directly. You may also need to explain the role of taxes in estate planning and how they have influenced decisions.
☆ Pro Tip:Distribute a glossary of terms or similar explanation of the goals of probate documents such as trusts, wills, and powers of attorney. |
Find out more. With that in mind, identify all the stakeholders in the estate plan and their roles. Who are the trustees and trustees? Are there other financial advisors, estate planning attorneys and accountants involved in the plan? As you move from high-level discussions to more detailed discussions about implementing a plan, knowing this information becomes increasingly important for the family.
Rinse and repeat. The family reunion is not a one-off event. Establish a regular rhythm to strengthen education and awareness within the family. You can also schedule one-on-one meetings with participants before or after the group sessions so they can ask questions and speak more freely.
Ready to get personal?
Relationships can only grow and thrive through good communication. And for good communication it is necessary to know the needs of your customers exactly so that you can give them recommendations and solutions for their individual situation that are as individual as possible. Family reunions can “deepen the relationship and create continuity between the family clients … and that’s what the client really wants,” Renaud said.
So how can you help your clients pass on assets to the next generation and create a legacy for the benefit of future generations? Get ready to get personal!
Please consult your organization’s compliance policies before proceeding with any new designation/certification program.
FREE DOWNLOAD
Advanced financial planning strategies for wealthy clients
Discover creative, comprehensive financial planning solutions—from wealth protection to charitable giving—to meet the unique needs of your high net worth clients.
