The Great Wealth Transfer: How to Retain Next-Gen Assets

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Note: the follow is an article written for BMO's Insights after an interview I did with the firm.

For many Advisors with long-standing high-net-worth clients, the intergenerational shift in wealth is of great concern, specifically retaining the assets of heirs after an inheritance. According to Lloyd Williams, it’s even more pronounced than the preceding wealth transfer from the WWII generation to Baby Boomers, since their value systems and work ethics were more philosophically aligned than those of Baby Boomers and Millennials today. “Millennials are a whole different breed; they’ve stepped outside the bounds of their parents.” So how do Advisors keep family wealth? Lloyd Williams shares his six-step process with Insights.

66% of children fire their parents' Financial Advisor after they receive an inheritance1

1. Protect ALL interests

Your natural inclination is to protect the interests of your “lead” client in an affluent family – typically the parents. However, when it comes to the intergenerational wealth transfer underway (approximately $750 billion in Canada during the next decade alone2), it’s important for Advisors to view the family as client – and learn to protect all interests.While you may be an adept mediator, well versed in navigating conflicts as they arise within a group dynamic, it’s critical to meet with family members individually. By doing so you’ll lay the groundwork for a mutually beneficial relationship by facilitating participation; asking questions; and eliciting their hopes, dreams, needs, and vision for wealth. You’re not there simply to share facts and figures, nor are you there to provide all solutions. Your role is to ensure that all parties feel truly heard. The resulting trust is fundamental to retaining assets, and opens the door to potentially onboarding new money: the hard-earned wealth of heirs who may already be established professionals. 

2. Talk business

When dealing with prospective clients, the first thing to identify is if there’s a business connection between generations. If so, despite any succession complexities, this presents an inherent commonality an Advisor can lever – and by virtue of being in the family business, the children have interacted with those assets to an extent, and perhaps already exert some control over the money.

For all families, early wealth education is a must. Help your lead clients to see the value in articulating how they’ve amassed assets, and in integrating their offspring into the decision-making process. By shortening their learning curve, heirs will have a skillset in place by the time wealth transitions.

3. Create value through open communication

When you do put family members together in the same room, you’ll quickly identify the hotspots to work on. For example, a third of my advisory practice was with family-owned businesses in transition, so I’d see retiring parents grappling with which child should take a lead role, navigating potential interference from extended family, and deciding how to deal with business equity.

In this setting, pay attention to the quality of communication: Is there ongoing dialogue? Does the next generation understand their parents’ wealth plan? Have the parents remained secretive? Do siblings see eye-to-eye? The more closed off the relationship is between generations, the more prone it is to real tension. In fact, far too many parents have not opened up with their kids about the family wealth, leading not so much to ignorance – most children have a pretty good feel for their parents’ net worth – but to distrust.  It’s up to you to break the news that the secret mom and dad are keeping likely isn’t a secret after all.

As an Advisor, facilitating these meetings adds tremendous value; you’ll be a catalyst to positive change – making a difference in the lives of each person at the table. The important thing is that everyone gets a vote. And while it’s realistically a much lengthier process to gain family consensus on stewardship and wealth transition, the return on your investment of time should be the retention of all assets

40% of Canadians have not discussed estate intentions with their heirs3

4. Motivate your clients into immediate action

People are motivated by pursuit of pleasure and avoidance of pain. Use one or both arguments to incite action now and help your clients solidify their legacy. For example, parents may not be eager to integrate children into the planning process, but will become motivated as you help them to focus on the risks of inaction: hard-earned wealth being mismanaged, a business demise, or sibling conflict. The benefits of the process may capture their attention too.  It’s up to you to figure out how to get them up and out of their chair.

Uncomfortable subject matter is par for the course, so on occasion you’ll inevitably find yourself broaching the fear of disaster. An obstacle to planning may be that Mom and Dad are alive and well,but the reality is, nobody’s guaranteed his or her next breath. No one enjoys these conversations, but they will appreciate your ability to help them acknowledge the risks, and be more receptive to taking immediate action.

5. Consider a family office approach

As Advisors become more seasoned, they tend to narrow their scope, establish minimum thresholds, and focus on a particular investment style or niche market. While there’s tremendous upside to being a specialist, you may find your particular approach doesn’t resonate with the next generation.

In my practice, we developed a multi-client family office solution, advocating the power of pooling assets in order to manage money for future generations – creating some real growth-oriented portfolios in the process. We’d then point to our track record, and demonstrate to prospective clients that no one could manage their family’s individual accounts the way we’d manage their collective $10 million – using an endowment model. By the time I retired, we had 26 such family trusts set up. There remains a great opportunity for Advisors, when you consider the sizeable marketplace of $10 million to $50 million family-owned businesses out there. 

6. Help clients avoid pain that goes beyond the grave

You might encounter siblings that initially won’t compromise – or worse, have the means to use legal recourse to dispute estate transfer issues after your original client is gone. To be sure, there are brothers and sisters out there who haven’t spoken for decades after an inheritance battle. That’s a pain beyond the grave that you want to help today’s clients avoid.

Through an inclusive process – and the fundamental act of listening to each individual – you can achieve powerful results for everyone. I remember one client saying to me, “the greatest thing about our transition plan is that it brought our kids together.” It wasn’t the fact that she and her husband were enjoying a comfortable retirement; it was that they felt like a family again. Helping to that extent meant rewards for my team that went far beyond asset retention.