An assumption many advisors have always taken as fact—that kids will invariably dump their parents’ advisor when they inherit the money—may no longer be as true as it once was.
In a new survey conducted by Morgan Stanley and Campden Research of 87 ultra-high-net-worth individuals under the age of 40 (who come from families with a minimum wealth of $25 million), about 49 percent say they’re extremely or very likely to continue using their parents’ advisor.
Previous research conducted by Campden in 2012 showed that 62 percent of heirs said they were highly or somewhat likely to fire their parents’ advisor. Going back even further, a 2009 study by Rothstein Kass found 86 percent of heirs with family offices said they planned to fire their parents’ advisor. In fact, the notion of children walking away from their parents’ financial advisors upon inheritance is ingrained in so much of the industry literature, it’s become for many an unquestionable fact.
What changed? The current study cites greater education among the next generation, as well as a higher level of engagement between younger investors and financial advisors. According to the survey, those UHNW investors under 40 often started learning about investments in their late teens and 20s.
“There’s lots more little tools for advisors that call attention to transition readiness,” says Vic Preisser, founding director, Institute for Preparing Heirs. It’s about giving advisors access to assessment tools—things such as 10-question pocket quizzes or longer questionnaires that help advisors connect, and help educate the heir in the process.
But Preisser says that the education is not just on the client side. “One of the drivers of this trend is educating those who deal with high-net-worth families to see the family as the client, not just mom or dad or both of them,” he says.
The rise of teams also plays a role in the decreasing client attrition during the wealth transfer process. Advisors age right along with their clients, but a team can introduce younger advisors that are able to work with younger clients better.
“Advisors are forming teams that are very much like families,” Preisser says. “It’s a much more comfortable relationship. And the ages of the advisory teams are dispersed, so you’ve got younger people on the team at the same time you have senior people on the team. So it’s much easier for them to connect with younger people in the family.”
About 43 percent of heirs have a very active relationship with their family financial advisor, the report found. Of those working with their family advisors, 41 percent started to do so when in their late teens, while 38 percent said they began engaging in their 20s. About 14 percent of respondents—60 percent of whom were under the age of 30—said they had not worked with their family advisor yet.
But while children of high-net-worth families may be less inclined to fire their advisors than before, that doesn’t mean the client attrition rates among advisors serving the mass affluent are falling as well. “As you move down the wealth spectrum, while the problems are the same, their advisors are less able to afford the training they need on how to connect,” Preisser says. “The advisors to the very wealthy can afford to get the training on how to connect with the heirs.”
At the end of the day, advisors who want to retain these investors should take the time to engage face-to-face, despite widespread use of social media among millennials. According to the study, 82 percent of heirs under 40 say they prefer in-person conversations, followed by phone (74 percent) and email (68 percent). Only 15 percent want to engage with their advisor via social media, and even fewer (5 percent) want to use Internet video conferencing tools such as Skype.
There’s a catch, though. “Clients want in-person interaction to be better informed, not to be sold,” Preisser says. In other words, younger investors are savvy and don’t want a sales pitch.
While an active relationship with clients’ children can definitely pay off, the opposite is also true. A good many of the 19 percent who say they had no involvement with their family’s advisor made up the 31 percent who are not very or not at all likely to use the current advisor.
Yet 63 percent of heirs believe an advisor is necessary to make sound investment decisions. For those wealthy heirs looking to hire an advisor, experience, reputation of the firm and clients’ level of control over accounts are the top qualifications, the report found.
Fees are also important for investors, but the next generation is split between fee structures, with 48 percent preferring commission-based pricing and 52 percent preferring asset-based.
And while 77 percent of respondents ranked investment advice as the most important advisor service, tax planning came in second (75 percent) followed by asset allocation advice (72 percent)—preferences that are quite similar to older generations, according to the study.
Updated Oct. 24 to include remarks from Vic Preisser.