“One of the largest transfers of wealth is estimated to occur within the next 40 years; however, many wealthy households are not prepared to appropriately pass their assets to the next generation.” – Spectrem Group
Are you a financial advisor or RIA looking to capture a portion of this money in motion, and if so, how do you go about helping your clients and prospects in this transition?
Morgan Stanley reports that Millennials stand to inherit about $30 trillion dollars over the next few decades.
How likely are advisors to be involved in this generational wealth transfer? According to Spectrem, while just 36% of investors believed their advisor would be involved, the percentage increased with wealth.
A report from Spectrem research detailed four methods to potentially increase advisor participation.
1. Develop a relationship with the beneficiaries.
You can’t start a relationship if you’ve never asked. According to Spectrem, 62% of high net worth and ultra high net worth individuals said that their financial advisor never asked to meet their children.
Even more of a challenge for advisors is that many clients did not want their children to know their financial advisor. In a somewhat more encouraging note, Spectrem said that approximately half of the households would introduce their children to their advisor prior to their death.
What’s an advisor to do? Said Spectrem, “The ability to explain the administrative complexities to existing clients and develop relationships with the next generation is critical for those entities that wish to retain the management or administration of existing assets.”
2. Identify investable and non-investable assets.
“Wealthier households hold more assets in which liquidation or transfer is generally more difficult,” the report said. “Investment real estate, alternative investments and ownership of privately held businesses require investors to engage in planning for proper transfer upon their death.”
Having a team of experts may help. “If an advisor can refer beneficiaries to real estate brokers, art appraisers or other experts,” said Spectrem. “It is more likely that upon the liquidation of various assets, the advisor may be able to retain some of the management.”
3. Establish an estate plan.
Many people don’t have an estate plan just because they don’t want to talk about end-of-life issues. The challenge for advisors – if you want to maintain “trusted advisor” status – is to “pro-actively encourage the process. “Ask to see the will and trust, and if they don’t exist, refer your client to an estate attorney or other professional (either within your firm or not).”
4. Understand catastrophic health issues and discuss outcomes with your clients.
Almost half of all investors, said Spectrem, regardless of wealth level, were concerned about spending their last days in a nursing home, and in the drain on their assets that may otherwise go to their spouse or their children. If you are looking to help your clients and their next generation, Spectrem advised advisors to be knowledgeable about long-term care options, Medicare, and health insurance, and how they impact client’s current and future financial lives.