When dealing with high-net-worth clients, you have to know your clients’ children. And, just as importantly, your clients’ children have to know you. Obviously, it’s advantageous to have a relationship with all of your clients’ families, regardless of relative wealth. The more you know about them, the more effective an advisor you can be, plus some of those kids might become clients themselves some day down the line. But with high-net-worth clients, you’re often dealing with sums that can be expected to stand the test of time, so you can predict with some certainty that there will be a wealth transfer event and those particular heirs will become clients. You already have their money, after all; it just hasn’t become theirs yet. It’s important to recognize this likelihood and begin to forge a relationship far in advance of the anticipated transfer (inasmuch as such a thing is possible to anticipate) to strengthen both the transfer plan itself and your future professional relationship with the heirs.
One of the great boogeymen of wealth transfer is the fear that heirs will take their inheritance and promptly move it to another, more “trusted” advisor. Though perhaps a bit overblown (as noted by our own Megan Leonhardt in her recent article), this is a very real risk and probably impossible to mitigate completely. However one of the most effective methods of doing so is to ensure that you are that trusted advisor.
Achieving this status can be easier than it sounds, and a little exposure can go a long way. Simply requesting to meet the child periodically throughout your relationship with their parent, perhaps starting at a time before the heir can fully understand what an advisor even does and, ideally, continuing until the now-adult heir is being included in substantive planning meetings, can help alleviate some of the shock that can occur in heirs when the head of a family dies and a complete stranger show up who knows more about the family finances than any of them do.
We like to think we know our loved ones better than anyone else, so it’s naturally uncomfortable to be confronted by a perceived outsider with greater knowledge than our own. A great deal of the mistrust in these situations stems from a desire to regain “family” control over this information. If, however, the person holding that information is not an outsider, but your parents’ long-time advisor who you’ve known for 25 years, even if you haven’t worked with him yourself, it can take the edge off this instinct.
It’s important to note that forging these relationship are not simply cynical, selfish acts, but also offer tangible benefits in the planning process. The sad fact is clients often can’t be relied on to provide a realistic view of their own children. This reality can cause unforeseen problems in their transfer plans and down the road. A great deal can be gleaned in a short period of time by simply meeting and briefly speaking with the heirs. Now it’s easy to think of extreme scenarios where parents are convinced their child is a brilliant, selfless angel, when in reality, he’s a lazy moron with a drug problem, and these situations absolutely occur. But, the sort of disconnects you’re more likely to encounter are a bit more subtle.
For example, parents and children can share a desire to engage in philanthropy, but harbor vastly different charitable interests. The parents, recognizing that they’ve successfully instilled philanthropic values in their children, but not realizing the difference in interests, may assume that the heirs will happily take over the family’s charitable foundation, whose mission statement reflects the parents’ interests, when the reality is that the children probably don’t desire such a role and would perform poorly in it. Though this problem seems complex and nuanced, it probably could have been avoided if the advisor simply asked the heirs during the planning process, “So, what are you in to?”