We’re three years into the decade-long stretch from 2016 until 2026, which is the period over which a predicted $1 trillion will change hands through personal wealth transfers in Canada. And if advisors don’t act right and act soon, they may very well end up left behind by disaffected clients.
That’s the point stressed by an analyst from US-based research firm Cerulli Associates — a point he made about American advisors, but which should also connect with their counterparts in the Great White North.
Citing a survey Cerulli conducted from June to September last year, Asher Cheses told Financial Advisor IQ that 47% of the 100 high-net-worth practices polled indicated that they lost business after a client passed away and the beneficiaries decided to leave after inheriting assets.
“Many advisors seem to be very narrowly focused on the spouse, often at the expense of the next generation,” Cheses said. “Once a client passes away and their child receives the assets, the child inevitably will have a relationship with another advisor, or they simply will want to choose to go with an advisor they know and get along with.”
A critical mistake many advisors and brokers make is not engaging until they actually know that the child will be inheriting the assets. When that happens, he said, it comes off as a disingenuous attempt to cultivate a relationship for selfish reasons. The challenge, then, is to build “a more genuine interest” in the clients’ heirs from an early age.
While Cheses said there’s no specific client age when advisors and brokers must start working with the next generation to earn their trust, he said 18 years old or when they’re getting ready to go to university, starting to prepare budgets, and thinking about their career is a good starting point. At that stage, they would appreciate practical advice on student loans, budgeting, and certain education tools, among other things.
Another common strategy, he said, is for firms to hire younger advisors. Based on Cerulli’s data, the average advisor is 52 years old; estimates for the average Canadian advisor go as high as 59. Taking on new blood is often considered part of succession planning, but it’s also important for client engagement.
“Not a lot of 52-year-olds can really connect with the 25-year-old client segment,” Cheses said. “I think that’s something that is extremely, extremely important.”
Of course, working to provide early financial guidance to the next generation is difficult when the parents themselves don’t want to get them involved. Many of the high-net-worth practices Cerulli has surveyed say clients don’t feel comfortable sharing their information with their children.
“A lot of families simply wait too long to involve their children in the process. And I think a big part of this is the fear that if they tell their children that they’re going to receive a significant windfall of assets, they’re simply not going to be motivated to go back to school and will become a couch potato,” he said.
To overcome that roadblock, Cheses said, advisors and brokers may turn to individuals with tax and investment knowledge who can walk the family through the “more difficult conversations” involving wealth transfer.
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