Imagine inheriting a fortune, only to immediately fire your parents' trusted financial advisor. Sounds harsh, right? Well, it's happening far more often than you might think. And surprisingly, most wealthy parents aren't losing sleep over it. Let's dive into why this trend is emerging and what it means for the future of wealth management.
Over the next quarter-century, a staggering $120 trillion – that's trillion with a 'T' – is projected to change hands, passing from one generation to the next, according to research from Cerulli Associates. This massive wealth transfer presents both a huge opportunity and a significant challenge for financial advisors. But here's where it gets controversial... only a fraction of the inheritors actually stick with the advisors their parents used.
Cerulli's survey of investors with at least $250,000 in financial assets reveals that a mere 27% of future beneficiaries (primarily widows and children) plan to retain their benefactor's wealth advisor. And the number drops even further, to just 20%, among those who have already received their inheritance. It begs the question: are these advisors doing something wrong? Are they failing to connect with the next generation? Or is there something else at play?
And this is the part most people miss... it's not necessarily about dissatisfaction. The survey digs deeper into the reasons behind this advisor switcheroo. It turns out, the primary driver isn't a sudden urge for self-directed investing or a fascination with digital robo-advisors (although those factors do play a small role). Instead, half of the inheritors surveyed already had established relationships with their own advisors. Makes sense, right? If you've spent years building a rapport with someone you trust, you're less likely to jump ship just because you've inherited more assets.
The second most common reason, cited by 28% of respondents, was simply not having a relationship with their benefactor's advisor. Think about it: if you've never spoken to your parents' financial planner, why would you suddenly entrust them with your newfound wealth? Only 14% expressed a general aversion to working with financial advisors altogether, and a mere 10% felt that the existing advisor didn't align with their specific investment goals. (Respondents were allowed to choose multiple reasons, highlighting the complexity of the decision-making process.)
John McKenna, a research analyst at Cerulli, offers valuable insight: "Keep in mind, if the parents die in their 70s or 80s, the inheritor is between 40 and 60. In most of these cases, they have matured into wealth management clients. They have relationships, and they're just going to be adding incrementally to their existing relationships rather than starting a new one with a legacy advisor."
But what about the parents, the benefactors themselves? Are they heartbroken that their children are ditching their carefully chosen financial gurus? Surprisingly, not really. Cerulli's research indicates that benefactors are largely ambivalent about whether their heirs continue using the same advisors, even though they generally report being satisfied with the service they receive. While just over a quarter expressed a preference for their inheritors to stick with their advisor, more than half were either unsure or explicitly stated that it was entirely up to their beneficiaries. A small minority (7%) actively didn't want their heirs to use their advisor, primarily because the parties lacked an existing relationship.
The core issue, according to Scott Smith, senior director of advice relationships at Cerulli, boils down to a lack of communication. And this is a HUGE problem. Clients are often hesitant to discuss their estate plans with their families. Even among investors with over $5 million in financial assets, a shocking 20% admitted they intended for their heirs to learn about their wealth after their death. Smith argues that the actual number of procrastinators is likely even higher, supported by the fact that 34% of high-net-worth heirs said they were only informed of these details after their benefactor passed away. This hesitancy makes it nearly impossible for advisors to build relationships with the next generation.
"Benefactors believe that they will talk to their next generation about this stuff before they die," Smith explains. "But when we ask the next generation, these conversations didn't happen." So, what's the solution? It's up to the advisor to proactively encourage clients to have these uncomfortable, but crucial, conversations. Advisors need to facilitate introductions and demonstrate their value to the entire family, not just the current client.
Smith emphasizes the importance of early involvement: "Reinforce it with the primary contact that it's important for the survivor to get involved early on so they have their feet securely on the ground and they aren't panicking as soon as it happens. It's not just that we're trying to retain the assets. We're trying to make it easier for your survivor when you pass."
Ultimately, this trend highlights the evolving dynamics of wealth management. It's no longer enough to simply provide excellent service to the current generation; advisors must actively cultivate relationships with the next generation to ensure long-term success. It also raises some interesting questions: Should advisors be more proactive in reaching out to the children of their clients, even if the clients haven't explicitly asked them to? Is it the advisor's responsibility to initiate these potentially sensitive conversations, or should they wait for the client to take the lead? What are your thoughts? Share your opinions in the comments below!
