Family wealth transfers outdated and lack transparency, Cerulli reports

Advisors and clients play a huge part of the problem in inheritance planning

Family wealth transfers outdated and lack transparency, Cerulli reports

The interactions clients have with advisors about their inheritance plans exhibit an astonishing lack of timeliness and transparency, according to a report by Cerulli Associates, with almost $70 trillion in wealth transfers anticipated over the next 22 years.

According to this month's "Wealth Transfer Problem" analysis from the Boston-based financial services research company, just 46% of asset owners express their goals and intentions with family before passing away, even though most asset owners (79%) plan to.

Scott Smith, research director at Cerulli, says that what’s missing are the discussions that might keep family members informed about what would happen with an inheritance and why. “There’s all kinds of rationales that go into bequests, and if it’s not discussed beforehand, it could create conflict and undermine the attempt to create a legacy,” he said.

Affluent investors, defined as individuals with more than $250,000 in investable assets, and the near-affluent, defined as investors under 45 with incomes of more than $125,000, were the focus of the survey's two key customer categories. The responses were weighted to represent how households in these categories, which are wealthier and older than the average American, were distributed.

The main reason wealth transfer discussions aren't happening, according to Smith, is that many financial advisors who don't consider themselves to be holistic financial planners would have to move outside of their comfort zones. “We have 300,000 advisors in the U.S., and probably 150,000 of them are running their book of business the same way as they did 10 years ago,” he said.

Cerulli found that part of the issue is advisors who don't pursue bequest discussions. The clients' propensity to keep their financial information private is the other factor. It's challenging to abruptly alter behaviour after a lifetime of keeping their finances private.

Just 26% of respondents indicated their heirs were extremely well informed about their goals and intentions for bequests, and the more affluent the respondent, the more probable that was the case. When asked if their heirs were aware of their intentions, 32% of respondents with more than $1 million in investable assets replied they did.

However, 47% of those who had less than $250,000 to leave behind were either unsure, believed their successors were somewhat uninformed or acknowledged their heirs knew nothing at all. Among people had between $1 million and $2 million in assets, the percentage of respondents who said their heirs were less knowledgeable fell to 29%. Yet just 26% of poll respondents with more over $2 million said similar things about their relative lack of information of their heirs.

“Talking to next-generation clients and talking about wealth transfer probably falls to 11th or 12th on an advisor’s top 10 list of things to do that day, just because things come up and the ROI for these conversations isn’t immediate,” Smith said.

He added that when discussing a wealth transfer, advisors should at the very least pose three questions: Do you have a plan? Has it been documented? What's our next step?