How To Retain Clients Over Generations

How To Retain Clients Over Generations

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Baby boomers are expected to transfer an estimated $30 trillion to $41 trillion in wealth to their Generation X and millennial offspring between 2011 and 2048, presenting a major challenge to the advisors working with them. Those advisors will not only be serving those boomer clients but also work to continue that relationship with their heirs, all with the goal of insuring the continuation and growth of their clients' wealth.

“Nearly two-thirds of family wealth is lost by the third generation … not because of poor investment strategy, but because of failures in trust and communication between family members,” says Michael Cole, the founder and president of Ascent Private Capital Management, a subsidiary of U.S. Bancorp. “The traditional providers of wealth management services such as banks, brokerage firms, registered investment advisors, insurance agents, accountants and attorneys focus primarily on traditional wealth and estate planning and neglect to address the strategic issues that account for 97% of the reasons families fail to sustain wealth,” writes Cole, in his new book, “More Than Money: A Guide to Sustaining Wealth and Preserving the Family.”  

Those wealth managers are focused on the tactical management of money when also need to focus on strategic issues involving the family — issues beyond money, such as:

Family history and values. This is the creation story of the family’s wealth. It must be “preserved, revisited and kept alive … to inform successive generations.”

Family vision and mission planning. Cole recommends that wealthy families develop both a vision statement — how it wants to exist in the world — and mission statement — how it plans to realize that vision. He suggests the vision statement include four or five shared values that family members can agree on.

Communication. Is the current means of communication among family members keeping everyone informed or is improvement necessary for better communication between and across generations?

Family governance. Who’s in charge of managing the family’s wealth and what are the rights and responsibilities of others? Optimal family governance “treats the family members like a family and the family enterprise like a business [and] recognizes the crossovers between family and enterprise.”

Leadership development and assistance. Preparing the next generation of leaders in the family. “Almost inevitably there comes a day when the wealth creator becomes less interested in the daily operations of the business, wants to move on … If next-generation leadership has not been selected and groomed for new responsibilities, the business is ripe for failure even before the third generation.”

Role clarification for family members. Acknowledging the roles currently being played by different family members to manage the family’s wealth and their participation, if desired, in the family enterprise, then check what gaps need to be filled.

Family education. Develop an ongoing program for family members to manage and steward wealth on behalf of themselves and their kin. Key elements address the meaning of money; spending, saving and giving; the history of the family and its wealth; the family enterprise; the role of private capital; and family vision and values.

Risk. Balance risk and reward, in line with a family’s mission. Risk management applies to much more than investments, according to Cole. Risks might include the loss of reputation from lawsuits, insufficient insurance to cover property, cyberattacks, or malfeasance by family members in managing family money. “A comprehensive risk management program that assesses the entire landscape of risk possibilities is a necessary part of the wealth strategy and the tactics that undergird it.”

This “amalgamation of strategic and tactical planning and execution” to sustain family wealth represents an important opportunity for advisors, says Cole. His firm works with more than 125 families whose average net worth is about $300 million, both advising and managing assets.

Source and Full Article: Think Advisor