The Next Generation

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The Wall Street Journal
By: Annie Gasparro
June 14, 2010

As baby boomers retire and pass on their wealth, financial advisers are scrambling to build relationships with their children

Families are in the midst of one of the biggest wealth transfers in history, as retiring baby boomers shift from wealth accumulation to wealth distribution. The challenge for financial advisers: How do they start building relationships with the next generation, since wealth accumulation is much more lucrative for advisers than distribution?

Admittedly, it isn't easy to get their foot in the door with clients' children or grandchildren, who have different wants and needs than their parents. They also have to tread lightly, because money frequently causes family conflicts. One wrong move, and the advisers could lose all of the business--from both generations.

The difficulties begin with the most basic problem: the age gap. For many advisers, connecting with a younger generation is as tough as getting teenagers to clean their room.

"It's not easy because most advisers grow old with their clients," says Mike Kostoff, a Naples, Fla., consultant for the wealth-management industry. "Their clients are their peers, whereas their children have a different outlook, making it hard to relate."

One obvious solution, Mr. Kostoff says, is to hire somebody closer to the prospective clients' generation. "Advisers look for bridges, like bringing in a younger adviser to the team to work with the clients' kids," he says. "They understand them better than an older adviser."

Another tactic is to help the children take care of their aging parents. The idea is based on the hope that the children will then keep the money with that adviser once they inherit it.

Ray Harrison, a Citrus Heights, Calif., financial adviser, says he finds that throwing surprise anniversary or birthday parties for clients can be a good excuse for reaching out to their children before it gets to that point. It's also an opportunity to make a good first impression.

Mr. Harrison, founder of Harrison Financial Group, encourages his clients to name deep lists of future trustees to their estates, giving him another chance to reach out to these beneficiaries and connect with the next generation.

"A lot of advisers don't want to build relationships with their clients' children because they don't have a lot of assets, but we will bend our minimum to take in clients' children," he says. "It keeps the bridges open for when they have more money."

A 35-year-old might feel comfortable managing $50,000 on her own, but after inheriting $3 million, she likely will seek some professional guidance. If the adviser has already established a relationship with the beneficiary before the inheritance, the adviser will be more likely to land the larger account, too.

Whatever the strategy, many advisers feel they have no choice. The money is moving, and they want to move with it. "In the next five to seven years, we will see $13 trillion of assets moving from one generation to another," says Dean Athanasia, the Boston-based head of global wealth and investment-management banking at Bank of America Corp.

Advisers say that they have to adjust their way of doing business if they want to connect with these new potential clients. Younger people, for instance, are technologically savvy. They are more likely to do business online and in the off hours, such as nights and weekends.

Bank of America Merrill Lynch plans to start a new online investing site on June 21, MerrillEdge.com, which will compete with other online trading sites for the business of mostly younger investors, including those who stand to inherit large sums.

Among other clientele, the site will target clients' children who aren't necessarily ready for a full-service adviser yet. In such cases, the site will put Merrill advisers in a better position to offer their services to the Merrill Edge account-holder when he or she receives their inheritance or share of the trust.

Privacy issues that often come with wealth can make cross-generational efforts complicated. "A lot of times we know more [about the parents] than their own kids know about them," Mr. Harrison says. "You have to know those ground rules going in. We are very careful with disclosure, and we need to know what they [the parents] want their kids to know."

Taryn Sievers, a Morgan Stanley Smith Barney adviser in Oakland, Calif., says some clients keep information from their children because, "generally, people are afraid their children will lose initiative, or not feel like they can live up to their parents' achievements." But the secrecy often makes kids feel like their parents don't trust them.

"If the children have a good relationship with their parents, then it's initially easier for us to build a relationship with them too," Ms. Sievers says.

She tries to talk to them about their life goals, not just their financial goals. "It's easier to talk about money when there's a goal that's not just about the money," she says.

A general problem with legacy planning is that the kids could disagree with the decisions their parents made, and they blame the adviser once the parents are gone.

But advisers can avoid this fate by getting the children involved in the legacy planning early on, so that there are no surprises.

Tony Montanari, director of business development for Capital Guardian Wealth Management, based in Belmont, N.C., says leading in with a specific strategy when discussing the legacy plan with clients' children shows them the adviser is being thoughtful and not just trying to sell their parents something.

"Obviously, you want the children to know who you are," Mr. Montanari says. "And the more complex the situation, the more opportunity you have to provide value-added advice and really get people's attention, putting you in a position to not lose the assets once your client dies."

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This page contains a single entry by CFED published on June 14, 2010 3:19 PM.

Inequality back at record highs was the previous entry in this blog.

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