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Wealth management firms are stepping up their efforts to woo young heirs to family fortunes.
Morgan Stanley Smith Barney will debut its “Next Generation Institute,” a high-profile, three-day educational conference for about two dozen wealthy families at the firms’ New York headquarters in August. Citi Private Bank will present similar week-long “NextGen 2011” events for younger clients in New York later this month and in London and Hong Kong in July.
Bessemer Trust is offering three half-day workshops to clients between 18 and 30 years old around the country this year, and BNY Mellon Wealth Management is putting on a series of financial literacy programs and workshops for younger clients covering topics like philanthropy and communication. Northern Trust and Bel Air Investment Advisers also present large scale programs for young heirs bi-annually and will resume their events in 2012. They will be joined by Silver Bridge Advisors, which will launch its own formal workshop series for this group early next year.
The intense focus on offering educational programs to children of wealthy clients is being fueled by both a practical need to cultivate new customers and genuine demand, say industry executives.
Conferences and workshops like the ones Northern Trust holds for newly graduated students looking for jobs “are a good way to bond” with the sons and daughters of ultra-high-net worth clients who will ultimately inherit the wealth, said Charlie Mueller, head of wealth advisory for Northern Trust.
Parents Want Help
The parents of those children, meanwhile, are clamoring for ways to help them cope with the demands—and potential hazards—of great wealth, say wealth managers.
“We find increasing demand for this kind of service,” said Tom Rogerson, senior director and wealth strategist at BNY Mellon Wealth Management. “And that demand has jumped noticeably in just this past year with the change in tax exemption on gifts from $1 million to $5 million. Many families are seeing this as a limited opportunity to pass on larger portions of their wealth. Yet wealthy parents worry whether the ‘kids are ready for the money.’ ”
Indeed, Morgan Stanley’s conference, which will accommodate about 75 people, filled up quickly and was over-subscribed, said Katherine Frattarola, executive director, business development and marketing for Morgan Stanley Private Wealth Management.
“What we hear most often from clients is ‘What are people like me doing?’ and it mostly involves children,” Frattarola said. “As their wealth grows, the absolute value of the money means less, and the impact of the wealth on the children becomes more important.”
David Plyler, chief executive of Gleneagles group, an Atlanta-based multi-family office which last month co-sponsored the Family Office Wealth Management Forum featuring several presentations devoted to Next Generation issues, agreed. “G1 [industry parlance for the first generation of a wealthy family] wants to raise G2 [their children] with middle-class values—but that’s almost impossible,” Plyler said.
Perhaps more realistically, “parents really want children to develop leadership qualities that can be used when the time comes for either a timely transition of the wealth or when a premature event triggers the transition,” Plyler added.
Children in the Dark
Major issues for the next generation children themselves include transparency and access to information, say industry experts.
“Many G2 folks I am working with feel like they’re in the dark and uninformed about what is going on with what ultimately impacts their futures, and that makes them passive and dependent on their parents. I believe some parents want it this way, but most don’t—and they don’t even know they are doing it,” said Gary Shunk, chief executive of Family Wealth Dynamics, a Chicago-based firm that facilitates family meetings and retreats.
Mobile and tech-savvy next generation children also “want to access their information and advice in new ways,” said Mueller. “They want access to what they want, when they want it.”
The issue was raised at Northern Trust’s Family Financial Forum in late September, an event that is held every 18 months for “families of substantial wealth” as well as family office executives. Advances in technology promise to keep the accessibility issue a hot topic at the next conference, scheduled for a year from now.
Next generation children also want to learn how to be entrepreneurs, industry executives say, and wealth management firms are obliging them. Bessemer is inviting successful entrepreneurs to its workshops to discuss their experiences and field questions, and Susan Duffy, a professor of Entrepreneurship at Simmons College in Boston will lecture at Morgan Stanley’s Next Generation Institute conference.
Financial education, philanthropy, succession planning will also be covered at the conference, along with topical issues such as social media and the security risks that posting too much information online can pose to a wealthy family.
The conference will have separate tracks for parents and children 18 to 30, Frattarola said, as well as joint “values-based conversations” around topics like wealth transfer, reputation and family legacy.
The conference is also an opportunity for Morgan Stanley to be “positioned as a thought leader and partner to help clients think through these decisions,” said Melanie Schnoll Begun, managing director for Morgan Stanley Private Wealth Management. “It’s important to be partners in other parts of their lives outside of finance.”
And, of course, catering to the next generation is also good business.
“Demographics and wealth transfer are making this an extremely important subject in the industry,” Mueller noted. And if a wealth management firm isn’t working on next generation issues, Plyler added, “They will appear naked when a client, or potential client, asks that question.”