Retaining The Business Of Your Clients' Kids Is A Long Process, Advisors Say
September 27, 2024
In order to retain the business of a family’s next generation, Coldstream Wealth Management treats them as clients before they actually are.
The establishment a relationship with clients' children is crucial to keeping their business once their parents have passed away, said Glen Goland, a Coldstream wealth manager and lawyer who focuses on the second generation in the client relationship.
“We have a one-page information sheet to show our value-add for the second generation that is outside the investment side of our business,” Goland said. “We also have an advisor dedicated to working with widows and widowers, so we can retain them as clients after the spouse passes away.”
Forging the relationships with younger members of the client family takes time, he said.
“We meet these potential clients where they are and have conversations without the parents present, if possible. In the case of a couple, we make sure we meet with both spouses,” he added. “When the time comes, we make changes where necessary. For instance, if the couple had four meetings with us a year, the surviving spouse may need 10 shorter meetings a year to become comfortable. The tone of the meetings with the second generation depends on the age of the children.”
Marc Schechter, CEO of Schechter Investment Advisors, a financial advisory firm based in Birmingham, Mich., agreed the key to being successful at retaining the second generation as clients is establishing a relationship well before the kids actually become clients.
“The children of our clients have different goals, spending behaviors and philanthropic wishes” from their parents and from each other, Schechter said. “We treat them as independent clients. If you have not established a relationship, that money is leaving. If a firm has no relationship with the children, only 15% stay. For us, if there is a relationship, I’d say 100% stay with us.”
In general, technology is more important to younger people, so Schechter is focused on keeping up with technological offerings. The firm also waives the account minimums for legacy clients and gives the family discounted fees.
“If a family business is involved, it is often split unequally among the children, depending on the heirs’ interests and involvement,” Schechter said. “Every situation is unique and it is critical to work with the differences” among the heirs.
Chappell Wealth, a family-owned, independent financial advisory firm based in The Woodlands, Texas, holds day-long seminars to address the questions of potential clients and current clients.
Brad C. Chappell, the firm's managing partner and founder, said it is up to advisors who want to engage the second generation as clients to talk with them about more than money.
“For parents, it is not just about their children inheriting wealth. The parents want to see their kids succeed; they want to see their children experience joy,” Chappell said. “We want to show the children their inheritance time is right around the corner and they need to understand how money works.”
The adult children of clients may not be the ideal clients at first because they are early in their careers and do not have much money to manage, but “we want to be a multigenerational firm.” To accomplish that, Chappell Wealth has young advisors, with the oldest being 47.
The firm stresses transparency and communication, including using the latest technology, he said.
Andrea Shafer, executive vice president and chief supervision officer at Cambridge Investment Research, a financial solutions firm for independent financial advisors and their clients, said having knowledgeable younger advisors is one of the keys to retaining the second generation as clients. Cambridge has a study group for new advisors, and retaining the second generation of clients is one of the topics addressed.
“We proactively work with our advisors through our practice management groups to talk about how to retain those assets,” said Shafer, who is part of the firm’s efforts to keep the second generation as clients.
“We try to empower our next generation of advisors to work with these potential clients—to bring them in early and establish a relationship even if they are not clients yet,” she said. “The next generation of clients is the future of the industry and we want our advisors to know how to retain them and work with them.”
Practice management training includes teaching ways to grow a firm’s business by keeping second generation clients, she added.
The situation is somewhat different when it comes to financial advisors who work with younger clients through employer-sponsored retirement savings programs. Sageview Advisory Group, based in Newport Beach, Calif., works with retirement plan sponsors, including advising the plan sponsors on how to enlist and keep employees in the programs. Many of the employers are in technology with young employee bases.
Eric Weissman, senior wealth advisor at Sageview, said young employees are interested in the basics and employers can offer financial consulting as a benefit of the job to hold employees. Sageview can provide the guidance so that employers can offer their employees financial consulting, making them more adept at handling their finances.
“A financial advisor is often not going to work with these employees because they do not have enough assets and most school curriculum does not include finances, so employer-sponsored programs are invaluable,” Weissman said.