Serving HNW clients by aligning generations on succession

It’s taken as fact that higher net worth clients come with greater complexity, that more money does come with more problems. Advisors looking to serve more of these higher net worth complex clients, however, need to fully understand the specific areas of complication that these clients will come with and understand that sometimes that complexity is technical, and sometimes it’s familial.

Tim Brisibe, VP and Head of Tax and Estate Planning at Mackenzie Investments, explained the ways in which greater wealth creates greater complexity. The stakes, he explains, tend to be higher for these clients. They come with more sophisticated legal estates, tax issues, and strategic philanthropy structures. They have complex goals and complex routes are required to achieve them. Often their wealth exists in multiple jurisdictions and almost inevitably, there’s at least one business involved. For all the technical knowledge and expertise required of advisors to navigate these complex problems, Brisibe highlighted a core issue that many high net worth clients need solved: succession.

“Managing succession and continuity is different from just succession,” Brisibe says. “Advisors stay with their clients to ensure continuity, to ensure they have successors in place who are ready, willing, and able to participate. Many business founders see their purpose in life linked to their business. That makes it very difficult for them to let go. So how can advisors help those folks rethink retirement?”

Core to this challenge is what Brisibe calls the “risk of legacy friction.” Entrepreneurial and business owning families tend to have the sticky challenge that comes with misunderstandings between generations. The generation that founded a family business may have an understanding of their family purpose and values that doesn’t match the next generation’s understanding. Those younger generations may have their own goals and ideas for the business, but the founders don’t see them as ready to lead. There can be mismatches in what the business means for the family, whether that’s legacy, impact, or freedom.

Brisibe notes that most business owners want their children or family members to inherit their business, but that most of those individuals don’t believe their chosen heirs are ready to run the business at this point. While preparing that successor generation may be a core responsibility for the family, Brisibe believes that the family’s advisors can demonstrate value by facilitating those lessons and conversations in the succession process.

“Gone are the days where advisors would ask questions like, ‘do you have a will? Do you have an enduring power of attorney? And so forth,” Brisibe says. “Clients are moving way past the portfolio and they’re into this realm where they would prefer for the advisors to be a steward or a champion is what I call it the ability to manage the family’s portfolio as well as manage the family’s legacy.”

The role of the advisor in this process, Brisibe explains, is in building a governance framework for the family and the family business. That means facilitating conversations about values, mission, and vision. It can mean drawing up a charter for the family that guides education for the next generation. It means getting that generation ready through early financial literacy explanations and inclusion in more high-level meetings.

That work can quickly stray from the financial to the personal and into the psychological. While Brisibe notes that the integration of psychological principles into advisory practices is a growing area of the business, he also believes that advisors can lean on external experts and referrals for certain parts of this process. Firms, he says, are beginning to add these specialists and experts into their wider infrastructure to support advisors in exactly these kinds of conversations.

Brisibe notes that many of those firm investments in experts are occurring abroad, as other wealth management markets lead in the new ways that high net worth clients are served. Canadian firms, he says, can follow their lead in adding these internal specialists as well as finding new ways to measure and understand the different views of a business espoused by different generations. The increasing role of advisory teams, too, can help advisors connect better with clients and build multigenerational relationships more easily.

The goal as Brisibe says is to go deeper, to understand how families connect to one another and share their values with one another. Getting that understanding may mean meeting the family on different terms, in different locations, and in settings where everyone feels more comfortable.

“Where we are today is that advisors need to pivot to effectively help this high net worth client. If we don’t do this, then we’re left behind. And these clients would look to firms that would help them with this,” Brisibe says. “In the age of CRM3, otherwise known as total cost reporting, firms have to show the value of what they bring to these services that they provide to high net worth clients. Transparency and reporting means that the clients have access to the fee structure and the fees that they’re paying. We need to bring more, and the conversation we’re having right now are bringing more in all of these areas to the affairs of the families that they serve.”