Navigating Wealth Transition: An Advisor’s Guide

When it first starts, you’re not sure if it’s just you feeling something strange, or, if there’s something odd going on around you. Then, with no warning, it hits. At first it rumbles. Then it shakes. Then it can sound like a bullet train screaming past the station at 200 miles an hour. With earthquakes, you don’t always know they’re happening until they’re almost over.

In the financial services business, we’re in the midst of a tectonic shift that won’t register on the Richter Scale, but nonetheless will dramatically change the landscape in the financial services business for decades to come. At the epicenter of this temblor is the transition of assets across generations. The first foreshocks came in the form of wealth transferred from the Greatest Generation and the Silent Generation to Baby Boomers, and there’s still years more movement to come with that wave.

But that’s just a preview of the Big One. According to one study, an estimated $48 trillion in wealth – all kinds of assets – will transition from Baby Boomers to Gen X, Millennials, Gen Z and charities over the next two and a half decades.

Of course, this means the transfer of your clients’ equities, fixed income, alternatives and cash to someone. It also means that nonfinancial assets – the privately held businesses your firm serves, oil, gas and mineral rights, personal, commercial and industrial real estate, farm and ranch land, collectibles and personal property – will be changing hands at a record clip. Never before in history has there been this magnitude of assets flowing across generational fault lines. For the unprepared advisor, this could mean fewer clients, a shrinking business, and reduced revenue. But, like people living in areas prone to tectonic movement learning earthquake preparedness steps, here are five actions you can take today to navigate the wealth transition experience taking place right now:

  • Understand why it’s important to clients to discuss wealth transition – Many clients want to talk about transitioning their wealth. They want their wealth to have legacy meaning and communicate their values to their heirs. It’s not necessarily a comfortable topic for advisors to initiate in conversation, but it is important for deepening a relationship. It is not unusual to learn that a client would like your help in discussing their plans with their family members. I am often surprised when I speak with people who have accumulated significant wealth that they have never discussed money with their children or grandchildren. Perhaps the procrastination is driven by discomfort or its simply due to not knowing how to approach the subject. Sometimes all it takes to engage your client in a dialog about their wealth transition plans is asking some simple questions like “how comfortable are you with your current estate plan?” or “what concerns do you have about your beneficiaries receiving wealth you plan to share with them in the future?”. Knowing that it’s important to your clients is a first step.
  • Deepen your comfort and confidence in facilitating a wealth transition conversation – There is no question that conversations involving family, money and emotion are very sensitive. The Art of Inquiry is about purposefully seeking knowledge through questions. Mastering the Art of Inquiry means building a competency that facilitates the exchange of knowledge and contributes to the development of relationships. Advisors can build their competency in discussing wealth plans related to asset transition through preparing, scripting and practicing. The preparation is learning as much as possible about a client’s wealth plans, values and family tree in advance of a conversation. Scripting involves writing well thought out conversational questions in advance, then practicing them to the point that the script is not needed. Having a repertoire of open-ended, thought-provoking questions prepared in advance and delivered in a natural, conversational manner creates comfort and confidence as an advisor.
  • Draw from wealth planning and your role as an advisor – Planning and advice are two of the most valuable elements of a wealth management relationship. Conversations about wealth transition are most productive when they encompass existing plans. If no wealth transfer or estate plan exists, working with the client’s attorney and accountant in the development of one is the first order of business. Talking through implementation of a plan and flowcharting how and where assets will move is a powerful approach to helping the client understand what their estate documents prescribe, and often leads to identifying necessary changes to a plan document to better align with their expectations.
  • Engaging with the next generation – Simply stated, advisors who do not engage with wealth recipients across the family tree lose relationships. With this reality in mind, the question becomes “how do I engage with my client’s family?”. The question mentioned above – “what concerns do you have about your beneficiaries receiving any wealth you plan to share with them in the future” – is a good starting point in the engagement conversation. In preparation for a wealth plan review, another important question to ask is “who else in your family would you like to include in our review of your estate plan?”. Also “who else in your family do you generally include in discussing your financial decisions?” can be a good opening to connecting with the next generation of a relationship. Finally, keep in mind that the next generation needs advice and planning too, so extending an open invitation to share your expertise in these areas across the family tree is valuable.
  • Introducing other advisors – Let’s face it – an advisor who has faithfully served the wealth creator (Generation 1) may not automatically be the best fit with the next generation (Generation 2 or 3). Read the family dynamics and individual needs to understand what G2 and G3 are looking for in an advisor. This is a place where we have to put our egos aside and recognize that relationships are personal, and each person is different. It’s better to retain a relationship across generations with another advisor at your firm than to lose the family to a competitor.

Plate tectonics concerns the movement of the ground below our feet. In the financial services business, our very foundation is shaking as we navigate the greatest wealth transition in history. We’re not preparing for something that will happen off in the future; it’s happening now, and the actions advisors take today will determine the magnitude of this shift on their business.

Dave Coffaro, principal, Strategic Advisory Consulting Group, has more than 30 years of experience expanding and refining his craft as a strategic organizational advisor, leader and developer of people. He has a distinguished record of leadership in the design, development and implementation of growth-oriented business strategies. Coffaro’s areas of expertise include leading organizations in the process of strategy development and execution, change leadership, organization transformation and innovation.

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