Keeping The Kids; Building A Bond With Clients' Heirs Creates Ties That Can Last Longer Than A Lifetime.
November 13, 2008
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Bank Investment Consultant
November 2008
FINANCIAL PLANNING; Pg. 34 Vol. 16 No. 11
1337 words
Keeping the Kids; Building a bond with clients' heirs creates ties that can last longer than a lifetime.
Howard J. Stock
When it comes to his clients, Sandeep Varma, an LPL financial advisor with wealth management firm Advanced Trustees Strategies in San Diego, is definitely a family man. He recently met with a widower to discuss estate planning and brought in not only an attorney and some assistants, but the client's five children as well. "The meeting went from 9 a.m. to 10 p.m., breakfast to dinner!" he says. "But the kids understood what we were doing and why so when their dad dies there will be no surprises. And at the same time, I have positioned myself as the family advisor."When the dust settles from the current economic crisis, baby boomers will still be inheriting significant wealth from their parents. The question for bank reps, as their elderly clients die and their estate plans are implemented, is how to hold on to these assets as they pass to the next generation. However, since the baby boomers were born between 1945 and 1964 and are now age 44 to 63, they are already likely to have a relationship with an advisor. That means convincing them to change advisors and keep their inherited assets where their parents banked. It could be a tall order, but it's worth the effort because those grown children are at an age where retirement and estate planning are top-of-mind issues. If advisors want to keep the kids as clients, they must start building those relationships before the parents die, says Randy Schmitt, an Investment Centers of America rep at ChoiceOne Bank in Kent City, Mich. "Family meetings after the fact don't work. The best-case scenario is to have heirs and grantors in the same meeting."WHY NOT?It seems preposterous, but asking about heirs isn't something that advisors are trained to do. A decade ago, it hadn't occurred to Patrick Seal, a CUSO rep at Elevations Credit Union in Boulder, Colo., to get information on heirs from clients. "I sit here now thinking, 'Why not?' The stickiness is increasing now that I ask where the money's going, and if I don't have a relationship there already, I'll establish one. I'd say 60% to 70% of assets stay with me now after a client has died. Ten or 15 years ago it was almost none because I didn't ask."When he did start asking, Seal made gathering information about heirs an integral part of his client interview process; his Financial Profiles software now flashes a request for any immediate heirs' names, addresses and phone numbers when he inputs data on new clients. Seal asks his clients if they wouldn't mind calling their kids at the initial meeting to let them know that they're working on a financial plan with him and to expect a letter. "It just takes a quick phone call to start building that relationship," he says. He then keeps in periodic contact with the children through holiday cards.What do you say to heirs you've never met before? "Your Dad requested that I get in touch. I'm his financial advisor," says Terry Utley, a Raymond James advisor at Mercantile Bank in Carson City, Mo. Utley also includes collecting clients' children's data in his initial interview to make sure he doesn't forget to ask. "They realize that I'm not asking for this information for my own edification but for their estate plan," he says.Utley normally calls clients' children although he'll send a letter if that's what the client wants him to do. "I don't want to be a voice they've never heard when the client has died," says Utley, who claims to keep 50% of his clients' kids. "I let them know we handle investments and also encourage the kids to talk to their parents about how their inheritance is being handled. It's part of the confidence-building process with the next generation."When one of Utley's clients wanted him to act as an executor, Utley asked the client to write letters to his children. "I had the client write a letter to the kids explaining that he wanted me to handle his affairs, I'm an important player in his financial life and that they should keep the assets with me. Whether they will or won't, who knows?"Of course Utley backs off if his clients don't want their children involved. "Occasionally a client will ask us not to contact the heirs for personal reasons or just because they have a hard time talking about dying and they don't want to think of their kids sitting around like vultures," he says. "I always say, 'You're the boss,' and hope they'll change their minds later."Once he has made an initial contact with the kids, it's important to keep the communication going. "I have a newsletter, or I might send a Thanksgiving card," Utley says. "A birthday card is a bit more aggressive than I'm comfortable with, but Thanksgiving and Christmas are busy times." Other advisors send quarterly newsletters about market conditions to cement their names in the children's minds.MANDATORY ATTENDANCEVarma involves his clients' children much more directly by inviting them to annual appreciation events. Indeed, he refuses to work with a client who won't involve their offspring in the planning process, even though it means turning down business. "We actually require that the kids attend the first planning meeting after a prospect has become a client, even if it means flying in," he says. "If you're talking about their inheritance, they will make sure they're there."Attendance is even mandatory if its important for the heirs to refuse the inheritance. For example, Mom and Dad might not be too happy if their money were going to go to the creditors of a child who was filing for bankruptcy. "Heirs need the ability to disclaim their inheritance, so it can go into a separate trust that isn't part of their estate, but instead benefits the next generation," Varma says.Such gatherings can unite families, which can be a huge gift to clients. One of Varma's clients had four children, one of whom hadn't talked to his parents in 20 years. "I said, 'I need the whole family there,' and they didn't even know where he was, they just had an email address," he says. "I told them it would be appropriate to get in contact as we were talking about inheritance and sure enough he called in." After a very tense meeting, the son called his mother to say that he didn't deserve an inheritance because he hadn't been a son. A week later, he was on a plane from Puerto Rico, where he was living, to visit his family. That kind of service is priceless, and Varma claims a 100% kid retention rate. "Advisors who don't stress the importance of getting the whole family together are missing out," Varma says.There are many reasons why the children should be present at estate planning meetings. For example, larger estates or illiquid property can't always be split evenly, says ChoiceOne's Schmitt. If there's a family business, one sibling may be working in the company while another has no interest. That has to be determined and resolved. And with all estates there are family heirlooms that can't be cut down the middle. Schmitt has actually organized family auctions and split the proceeds to resolve arguments.Heirs can also voice concerns over unforeseen inequities. A Varma client split his estate into equal shares for each child and an irrevocable trust for his grandchildren. While two children already had their own kids, one son didn't. What would happen if he wanted to have children later? Since the trust was irrevocable and couldn't be altered at a later date, Varma went back to the attorney to draft a new document that would allow for future grandchildren.If you don't involve your clients' heirs in their estate planning process, you're letting potential business slip through your fingers, says Seal, who is frustrated that his bank's trust department didn't reach out. "I saw $6 million in assets just walk out the door because of zero contact with the children before the client died," he says. "All it would have taken was a quick phone call to start building that relationship."Says Utley, "We're not doing this just to retain business, but because our clients want us to. It's the right thing to do."
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November 3, 2008
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