Succession planning has been top of mind for June Schroeder, CFP, RN, and for good reason — in the foreseeable future, she will step down from the financial planning firm she cofounded some three decades ago. As she contemplates the move, Schroeder has a number of questions that need answering: Who will fill her shoes when she retires; and, what will become of the clients and the clients’ assets she worked so hard to cultivate over the years?
“We need to think about the people and families we’ve built trust with, and the security and sustainability that comes with their assets staying with our organization for planning and management,” explains Schroeder, who’s in the process of gradually stepping away from Liberty Financial Group, her Elm Grove, Wisconsin, firm. “When we first started, we never thought much about multigenerational planning and never made it a priority. Now we’re talking about it a lot more, and I expect it will be a big part of our strategic planning going forward.”
The strategic importance of cultivating multigenerational family clients isn’t lost on John Freiburger, CLU, ChFC, AEP, and the advisors at the firm he heads, Partners Wealth Management in Naperville, Illinois. “We realize,” he says, “that the value of a wealth management firm is only as good as the relationships and the assets that are there, and how long they are going to be there.”
Preserving relationships and holding onto assets when they pass among generations of a family is a high priority at PWM, whose client base includes a substantial percentage of multigenerational families, including a handful of four-generation family clients, according to Freiburger. “Why would we want that business and those relationships to walk out the door when they could continue with our clients’ children?”
As successful as PWM has been holding onto multigenerational relationships and assets, it appears to be an exception in the world of wealth management. According to a 2014 report from Fidelity Investments, an estimated 90 to 95 percent of heirs elect to find their own new advisor after inheriting money from their parents rather than sticking with their parents’ advisor.
The justifications for pursuing multigenerational family clients go well beyond the bottom line, according to Howard Erman, CFP, EA, president of Erman Retirement Advisory in Seal Beach, California, who says there’s much to gain from the sense of emotional fulfillment that often comes with advising multiple generations. “Knowing I’m making a difference for a family and the world brings with it a certain psychic satisfaction.”
“It’s gratifying,” echoes Freiburger, “to be able to help a family create a foundation for passing not just wealth but values from one generation to the next.”
“There’s a trust factor that comes with these relationships,” adds Schroeder, “where you feel like you become part of the family.”
Because this is family, advising multiple generations does present its unique challenges. There are deep-seated issues, unusual dynamics and oftentimes, plenty of baggage, be it emotional, financial or otherwise.
“The biggest challenge is that my degrees and designations have to do with wealth management and finance, not psychotherapy,” Freiburger says half-jokingly.
With large sums of money and frequently a family business involved, an advisor working with multiple family generations often must also wear the hats of psychologist, mediator, interpreter and peacemaker. As complex an undertaking as unwinding certain family issues can be for an advisor, there are situations where, according to Freiburger, it makes sense to “bring in an expert” — a psychologist or therapist — to move the planning process forward.
What’s more, it’s not always easy getting generations within a family to talk openly about their finances, observes Schroeder. “Sometimes it’s difficult, especially for older clients, to share their financial information, as imperative as sharing that information is in many situations.”
If the client doesn’t see merit in opening such a dialogue with other family members, they may need a subtle nudge from their advisor, she notes. “It works better if it’s their decision [to bring other family members in to meet with an advisor]. But they can be led to that decision with a question like, ‘If something happens where you’re unable to make an important decision on your own, what would you want them to know, so they can handle that decision on your behalf?'”
Advisor as catalyst
Advisors who are skilled at initiating and moving those cross-generational financial dialogues forward tend to be most successful at cultivating multiple generations as clients, says Erman, who estimates his firm advises close to two dozen multi-generational families.
“What I try to do is to bring the children in with the client and have a family meeting; and to do that, you really need to first get the client’s permission and an idea of what they want to accomplish in bringing their kids in. The client has to want us involved, of course. And it usually works so much better if the parents are respected by the children.”
Freiburger takes a similar tact. “If we have our way, we’re going to [meet with clients’ children] every couple years.” These meetings provide a platform for him to review the parents’ wealth management plan, as well as his firm’s capabilities. “The more transparency and disclosure there is from us as to how it’s all going to play out, the better it goes.”
That approach seems to work, he notes, as “many of those children have become our clients.”
These meetings serve as a means for the advisor to not only initiate or advance a dialogue, but to highlight their multigenerational planning skillset to family members with whom they aren’t necessarily acquainted, Erman adds. “It’s a meeting where the generations get together to talk about the responsibilities of each generation to the other. It’s also a chance for the advisor to show they are skilled handling each generation’s distinct needs, whether that’s accumulating wealth when they’re younger or protecting wealth when they’re older.”
A client luncheon held recently by Erman’s firm was designed to accomplish exactly that. The firm invited clients to come with their children to hear a legacy planning specialist discuss the transfer of values and wealth across generations. “It was a way to get them in as a group in a non-threatening environment,” he explains.
While members of the younger generations — X, millennial — aren’t always amenable to engaging their parents’ advisor, Schroeder sees a “tremendous amount of interest in financial planning and financial security,” particularly among millennials.
Therein lies an opportunity for advisors to connect with younger clients. To do so, Freiburger says he’s made a concerted effort to understand what makes millennials tick financially and otherwise. He’s discovered that “they really do think differently [than other generations]. Their motivation [to seek financial advice] is there. But they don’t want to be told what to do, they want to feel like they are in control and want to be fully engaged.”
Parlaying a client relationship into a multigenerational advisory role becomes a much more straightforward exercise when the client understands how his or her family stands to benefit from having a single advisor and firm.
“It’s important for them to see the wisdom we bring to the table, and the cool stuff we can do in the way of estate planning, minimizing taxes, charitable giving and sustaining the family business,” Freiburger says.
Seeing the big cross-generational financial picture is one benefit, he says. “Only when the advisor has the big picture is he able to give the best advice.”
Continuity of service is another benefit. Sharing an advisor across generations “makes transitions easier, more seamless and comfortable,” says Erman.
An advisor who serves multiple generations can also help reinforce and transfer a family’s values, adds Schroeder. “I find that the older generation in particular feels a sense of relief knowing their family has an advisor who can provide consistency in follow-through, in ethics and in family values.
Why focus on the family?
By carving out such a role with multiple generations of a family, advisors make themselves indispensable — always a solid client retention strategy.
Today, it’s not just the very wealthy who are seeking advisors to assume such a role, Schroeder notes. “More mainstream families are looking for a go-to [multigenerational] advisor.”
From a business perspective, advising multiple generations opens up all kinds of opportunities, not just in terms of intra- and extra-family referrals, but also in working with the family on such issues as estate planning and wealth transfer with trusts and life insurance, business succession, establishment and management of custodial accounts involving kids and/or grandkids, discussions around retirement accounts and beneficiary designations and education funding.
It’s also important to keep in mind that not all multigenerational opportunities come about by parents bringing in their kids. “In some cases, it’s the opposite,” notes Freiburger, “where we’re working with a couple who brings their parents or even their siblings to us. We have situations where all of a sudden, we’re not just working with their parents, we’re advising their parents’ parents, too.”
However these opportunities unfold, advising multiple generations of a family often proves beneficial, not just to the family but also to the advisor. Because ultimately, from a long-term strategic perspective, says Freiburger, to have an enduringly profitable practice, “you need a generationally diversified client base.”