Recently I cited the horrific statistic that “70 percent of families lose it all following the receipt of their inheritance … assets, family cohesion, property, etc.” The financial industry is trained to prepare assets for heirs and not in preparing heirs for assets.
But the stats that seemed to get everyone’s attention were the internal wirehouse surveys that indicated a loss rate of over 90 percent for next generation heirs. Put another way, that means, the heirs of wealthy people keep mom and dad’s advisors only 10 percent of the time, according to a memo from a wirehouse executive to the financial advisory troops. That means to grow your advisory business, financial advisors have to go out and find/recruit a replacement for the estate that just left, and then go out and try to find other affluent investors (or perhaps find heirs who recently came into their parents’ wealth).
On top of those two factors, retail investors are on the sidelines and tentative about getting back into equities, according to financial advisors and wealth management executives we have spoken to. (The “flash crash” really put retail investors on guard, we have been told.) Affluent investors are currently trying to find a new balance between several developments:
- They have a diminished confidence level in their ability to shield their investments from massive and unknown forces in the marketplace;
- They are seeking information on “what happened” and trying to discover what might be a set of new rules for successful investing in the future;
- They really don’t want this to happen again to their families, especially to their heirs.
Affluent investors, to put it mildly, are experiencing feelings of heightened caution, wariness, and conservatism for what they see as the fragile financial future of their family and fortune.
Today, they are seeking new voices of counsel—advisors with a new perspective and new strategies. How can an advisor enter this new opening? How can an advisor be a “new voice” that is welcomed to the table?
Rule 1- Learn to be a true financial advisors to help differentiate your practice from a mere investment advisor.
That means investing in yourself, in new certifications and continuing education. Look for opportunities to learn new, non-financial skills in communication, marketing, family issues and prospect development. If the post-transition heir failure rate is 70 percent, and if families don’t want bad financial things to happen to their kids, you can help by pointing out some alternatives for the family and/or its advisors.
Rule 2 – Develop new skills that centers of influence (COIs) will value.
If your goal is to replace a family’s existing advisor(s), that takes years. On the other hand, if you bring something new and non-competitive to their party, you can be invited (by the CPAs, attorneys, trustees, et al.) to have a seat at their table. Skills like understanding where to turn for resources to conduct a family meeting, how to help a family develop their missionstatement, or guide them in working together to develop a long term consensusal strategy for their family’s financial future are all valuable. Traditional estate planners, trustees and tax/legal advisors are good at what they do. COIs love a credible resource they can turn to that brings value to their relationship with a wealthy family.
Rule 3 – Broadcast your new skills and knowledge.
This is necessary to alert the marketplace that you are special, and that you bring “special news” to them. The skills you broadcast about financial issues will not be received as well as skills that you bring to family issues around finance. A Board of Directors for a community foundation is not interested in a 20-minute talk about Monte-Carlo simulations, but they all have families and heirs. They all want to hear how to plan for a better life for their children. They are all concerned with issues of responsibility, accountability and dependability in their children (heirs). Link this to their financial future and you have a winning formula. Be prepared to give briefings to small investment clubs of five people, as well as to Rotarians and foundation directors and gatherings of CPAs. Become a spokesperson for preparing heirs for wealth and responsibility.
Vic Preisser co-founded the Institute for Preparing Heirs to train and certify advisors who work with high-net-worth families. He serves as the firm’s CEO and lead faculty for its Engaging & Retaining Heir Families training. Vic can be reached at [email protected] or 626-389-8664.