[July 2006]

Much has been written about the trillion-dollar wealth transfer — the inheritances baby boomers will receive from their parents, whose net worth has been bolstered by both the record bull market of 1982-2000 and the unprecedented run-up in housing values in most urban centres over the past 25 years.

There are at least a couple of reasons to be skeptical about the benefits that financial advisors will realize from this wealth transfer.

The first is that, with modern health care, today’s retirees are living longer and, in many cases, enjoying life more. And they’re spending more in the process: one of the fastest-growing segments of travel is high-end tours for seniors; one of the fastest-growing parts of the housing market is luxury condos in affluent communities, targeting nearby residents who are downsizing.

In other instances, seniors are spending years in long-term care facilities that can cost upward of $5,000 a month. Round-the-clock caregivers can cost $100,000 annually.

But let us assume there is a significant inheritance left over.

When that happens, a second problem emerges: for every client who inherits a windfall (and that assumes the inheritance isn’t spread among four children who use it to pay off mortgages and credit card debt), there is often an advisor who loses a valuable client. Quite simply, when the client passes on, the assets move as well.

There are two reasons why establishing relationships with the close family members of your key clients should be a top priority. First, in many cases, you are providing peace of mind and serving your client better by doing so. And, second, it simply makes good business sense to protect the assets.

Yet many advisors have weak or no connections with the family members who will be inheriting their best clients’ assets.

There are three basic reasons for this:

> In some cases, there is resistance from clients. They don’t see the need for their advisor to have connections with anyone but themselves — and they may be uncomfortable with or concerned about sharing details of their finances with family members.

> The client’s children may choose to assert their independence by having advisors of their own.

> In still other instances, it is because advisors have never raised the issue.

The most logical and easiest place to start is by ensuring that you have a strong connection with your clients’ spouses. Many advisors fall into the trap of exclusively focusing on the male partner in a couple — who is, of course, statistically likely to be outlived by his wife.

If something were to happen to a client and you have no relationship with the spouse, you are vulnerable to losing the assets to an advisor suggested by the spouse’s children or friends, or to a banking relationship that the new widow might have in place.

In such cases, you need to have frank conversations with clients about the fact they are doing their spouses a disservice by leaving them in the dark, and you should strongly encourage both members of a couple to participate in meetings and decision-making.

Making connections with your clients’ children can be trickier, and your clients may resist — but you will never know if you don’t ask.

One advisor, for example, says to top clients: “Recently, I was asked to sit down with the children of one of my clients to help put in place a financial plan. While I can only afford to accept new clients with assets above a certain level, I am happy to waive this minimum for close family members of my best clients, like you.”

Depending on the client, he might go on to say: “Is this something that you think your children might be interested in?” Or if he feels it appropriate to be more assertive, he says: “Would you have any issues if I approached your children with this offer?”

Another advisor asks clients flat out if they have had candid conversations with their children about how much the children are likely to inherit and how the inheritance will be distributed. The most common answer is “no.” She then talks about experiences in which there was rancour and squabbling among the children after the parents passed away, and strongly counsels the client to have these conversations. She also offers to sit in on these discussions to answer any questions the children may have about the parent’s financial affairs.

@page_break@A final set of strategies to establish connections with your clients’ heirs is via the special activities you conduct to build deeper relationships with top clients.

One Toronto-based advisor invited clients and their guests to an evening at a private club to hear two speakers. One speaker discussed “taking the chaos out of crisis,” focusing on what to do in the event of an emergency involving a senior, and the second on “secrets of healthy longevity.” The response was overwhelmingly positive. Some clients brought parents; others brought children.

Another advisor encourages clients to bring children to the periodic luncheons, dinners and evening events he runs for top clients to hear accountants, lawyers and outside money managers — again, with good results. One session that got a big turnout related to strategies for dealing with tax liabilities when passing on a vacation home that has appreciated dramatically to family members. This is a big issue for many families in southern Ontario, where there has been a big run-up in the value of cottages.

Still another advisor runs biannual Saturday-morning sessions on the basics of investing for the children and the grandchildren of clients, segmenting these by age group: one for 8- to 12-year-olds, another for children aged 13 to 15 and a third seminar for those 16 to 18.

The goal, beyond providing a service and creating goodwill among clients, is to raise awareness and begin the process of building relationships with the next generation. As an aside, these sessions conclude with pizza and pop, which may be the real draw.

A final example: one advisor has teamed up with two others in his office and shifted the focus of appreciation activity to family-oriented events — skating parties to which clients are encouraged to invite children and grandchildren, weekend-morning screenings of newly released movies such as Harry Potter and golf tournaments at which parents and their children are teamed up.

The purpose, again, is to raise the advisors’ visibility and profiles, not just with top clients but also with their spouses and children.

Building bridges to your best clients’ close family members can be a challenging task, but it is doable in most cases. As you think about your priorities for the second half of 2006, consider making connections with the families of your key clients a priority. The time and effort you invest may be some of the best you spend all year. IE



Dan Richards is president of Strategic Imperatives Ltd., a Toronto-based consultancy that delivers training to financial advisors. He can be reached at richards@getkeepclients.com. For other columns in this series, go to www.investmentexecutive.com.