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Retaining Heirs of Wealthy Clients

Here are two facts that should scare any financial advisor: First, over 90 percent of heirs change advisors promptly upon receiving their inheritance. Second, 70 percent of those heir families lose their assets and family cohesion after receiving their inheritance.

Here are two facts that should scare any financial advisor: First, over 90 percent of heirs changeadvisors promptly upon receiving their inheritance. Second, 70 percent of those heir families lose theirassets and family cohesion after receiving their inheritance. The first fact generates the question: How do I develop a relationship with the families—the heirs—of my high-net-worth clients before the estate transitions? And secondly, you might ask yourself: “What corrective actions can I offer that will differentiate my practice from my competitors while improving the heir’s odds of success?”

Obviously, the conversation must begin with the family before the estate transition plan is set. I refer to this process as Post-Transition Estate Planning—the preparatory work done before the estate transitions to ensure that not only the assets make it through the transition, but more importantly, the heirs are ready, able and willing to receive and manage the assets. Some call this the “missing link” in estate planning.

Research shows that parents worry about their children more than they worry about their money. Simply trying to persuade the family that you can beat the financial management skills of your competitors is a tough sell. And, even if you do make the sale, it’s tough to sustain a “beat-the-market” promise. However, if you can offer the family answers and resources that will let them extend their legacy, you’re adding value, you’re helping the family. And once that occurs, you become much less replaceable to the family leaders, and to the heir families.

After interviewing 3,250 families over 20 years, families that actually went through the planning-inheritance-evaluation sequence, Roy Williams, co-author with me of the book Preparing Heirs (Robert Reid Publishers), discovered why so many families lost control of the transferred wealth, became fractionalized and disputative, and spent substantial sums on litigation.

"The major causes of post-transition failures were discovered to be within the family itself, not a result of poor professional advice," our research concludes.

The family’s inability to trust one another, led to a breakdown in internal communications, and caused 60 percent of the failures. The second largest cause was the consequential failure to adequately prepare the heirs, which contributed to 25 percent of the failures. Finally, other causes, such as tax, legal, agreement on the long-term mission/purpose of the family wealth, etc., amounted to 15 percent of the failures.

The evolved question that kept arising vividly identified an opportunity for professional advisors: “Successful families work diligently to prepare their wealth for their heirs. Who is working to prepare the heirs for their wealth?”

On a positive note, the research also revealed that families who successfully transitioned wealth, while maintaining strong family unity, share common traits.

· Total family involvement, including spouses and grandchildren over age 16, in the wealth transfer and estate planning discussion and process;

· A shared family vision of long-term family goals and values in the form of a written Family Mission statement;

· High level of communication and trust among all family members.
Knowledge is education, and advisors who educate their client families of the risks associated with wealth transition are more apt to build strong ties with the entire family. Don’t be afraid to start the conversation.
Where does an advisor begin? Post-Transition Estate Planning is most easily understood when looked at as a three-step process.

· Step 1—Awareness: Make your client families aware of the risks. Our own research shows that 70 percent of families lose control of their assets and family harmony following the transition of their estate to the next generation. That’s a sobering statistic. Consider offering the topic, “Preparing Heirs”, at your next client event. That is a subject matter of general interest, and will likely draw the non-financial side of the family. It could open doors to conversations with other family members.

· Step 2—Assessment: Offer tools to measure the risk for a specific family because your clients may object with, “Okay, most families fail in estate transitions, but how do I know I am not in the 30 percent success group? After all,I’ve hired the best lawyers and accountants and estate planners that money can buy.” Tools available include a 10-question “conversation starter” all the way up to a 50-question Family Readiness Assessment that compares the family with 3,250 other families that transitioned their estate.

· Step 3—Action: After completing the Awareness and Assessment steps, it is inevitable that you will move into a new and deeper relationship with all family members. From here on in you need to work with the family to decide a course of action to ensure that family values transfer along with the estate’s monetary value. Consider aligning with a professional family coach who has a track record of working with affluent families through their estate/wealth transition.

Victor Preisser is co-founder of the Institute for Preparing Heirs. The Institute offers research, education and training to professional advisors through its Engaging & Retaining Heir Families program. He can be reached via [email protected]

TAGS: Research
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