Several years ago, my 70-year-old father finally embraced the concept of wealth transfer. It fell to me, as facilitator of his estate, to discuss the topic with my siblings and coordinate my father's wishes with his financial advisor. I'll never forget the look of confusion on the advisor's face when I stepped through the door unannounced during my father's year-end financial update. He had no idea why I was there or what my intentions were.
I'm hardly the only adult child who's paid a surprise visit lately to his or her parent's financial advisor. Many advisors are starting to see clients' children show up at annual or semiannual planning meetings.
Could this be the onset of the $41 trillion intergenerational wealth transfer that financial periodicals have been forecasting for the last decade? Regardless, advisors would do well to prepare for meetings they're bound to have eventually with clients' children. Your ability to handle these relationships and build trust with a client's next of kin will dictate whether you continue to manage the family's assets into the future.
WHAT'S YOUR GAME PLAN?
It's natural for clients' children to have concerns about family money. Inevitably, as parents age, their children start to worry about their ability to make decisions for themselves, especially in regard to their finances. Sooner or later, clients' family members likely will want to become more involved in their financial affairs. Although that day may seem far off, you really have to ask yourself: What steps or procedures have I created to help transfer wealth for my clients?
Short of hiring a highly paid psychologist or sending everyone on a weeklong retreat (as some experts advise families to do), how can advisors smooth the wealth-transfer process? There are three key components of the advisor's role: understanding the family's unique dynamic and values, educating family members about money management and, most of all, acting as a neutral facilitator. Your involvement in the wealth-transfer process can turn a potential family feud into a productive and meaningful experience for clients and their families.
Although my father's advisor was shocked to see me at first, he quickly embraced the opportunity to work with our family and played a vital role in coordinating the estate planning process. Here's an overview of the major steps we took, which could prove helpful as you develop your own strategies for assisting families with wealth transfer.
* Phase 1: Agree on a referee. In our situation, I knew wealth transfer was going to be challenging. Like many families, my brothers, sister and I hadn't communicated regularly over the years, and we had all developed our own beliefs and perceptions, especially about money. Silent grievances that festered for years were amplified as we began to discuss the family's modest wealth. We had the full array of personal conflicts to deal with, not to mention the involvement of outspoken in-laws.
Not surprisingly, some family members took offense to me, the middle child, stepping into the role of financial patriarch. And it soon became evident that some siblings were far more financially savvy than others. Some of us were big savers, others big spenders. One family member referred to the estate as his personal 401(k) plan.
Clearly, getting everyone on the same page would require effective communication and true collaboration. That's where my father's financial advisor came in.
Our first step in the process was for everyone to acknowledge the advisor as the official referee and coordinator of the family's financial affairs. Since he had always been agnostic in terms of product selection over the years, we knew that his only intention was to maintain the relationship, which made us all feel comfortable.
* Phase 2: Adopt a mission statement. Everyone agreed that the last thing my father would want is for his legacy to provoke family fights. Nor would he want our inheritances to lead to reckless spending or poor financial decisions. Keeping what my father would and wouldn't want in mind helped us work together and served as our unofficial mission statement. Although I thought it unnecessary at first, the mission statement helped promote communication among family members.
* Phase 3: Put it in writing-and maybe even on video. My father wrote down all of his wishes: Why he selected me to handle his estate; how he chose his executors and health care proxy; what his intentions for his house, insurance policies and investments were; and so on. This project was an emotional struggle. To make it easier, we created a questionnaire for him to fill out. When my father finished documenting his wishes, his advisor videotaped him reading the information. Besides financial matters, he also shared family history and meaningful events that had shaped his and our lives. We watched the video during a family gathering, giving my father the opportunity to elaborate and answer questions. We also decided who would be responsible for maintaining copies of important documents and lists.
* Phase 4: Let everyone have his or her say. From there, each sibling met independently with the advisor to review investing and financial planning topics and to address other personal issues. Through these conversations, the advisor discovered that one family member would receive a smaller annual inheritance. The advisor communicated this to my father and eventually to the family, and a distribution plan for that sibling was coordinated equitably.
The advisor also asked each of us to write down our intentions for the inheritances we'd receive eventually. Some wanted to pass their wealth on to their children, others were more philanthropic and one wanted to spend it all. By sharing our plans, we gained valuable perspective on our siblings as well as on wealth management. Thanks to their discussions with my father's advisor, several family members obtained a clearer plan for their own financial lives, apart from their inheritances.
Each of us also made a list of valuables we wanted from my father's house and explained why they were important. To avoid fistfights in the future, we tagged the bottom of each item with a color-coded sticker.
* Phase 5: Discuss final affairs. My father worked with his advisor on a document detailing the coordination of his final affairs. Although we expect him to live for many years, this project turned into another productive family conversation. As we discussed how and where he wanted to be memorialized and remembered, our family learned a lot about my father. In fact, advisors may gain more insight into clients' lives by helping to coordinate end-of-life plans than they do at any other time in the relationship.
LESSONS LEARNED
In the end, planning for wealth transfer turned out to be a rewarding experience for everyone involved, including the advisor. Based on his work with us, he created a more formal, documented approach to wealth transfer that he can use in other situations with a complex family dynamic. He also shared our family's story in the quarterly commentary he sends to his current and prospective clients and revised his website to include information on wealth transfer. I'm sure he's received plenty of inquiries from clients seeking to discuss wealth-transfer strategies at their next meetings.
For me, the experience confirmed how valuable a trusted advisor can be in helping families navigate this often-treacherous topic. Through his role as referee, educator and coordinator, my father's advisor set us up for a successful wealth-transfer journey. Countless studies find that family fortunes often dwindle away by the end of the second generation. I wonder how many of those families, with the help of a capable advisor, could have preserved the legacies previous generations built so painstakingly.
Scott Schutte is vice president of financial planning and risk management at Commonwealth Financial Network in Waltham, Mass. He can be reached at sschutte@commonwealth.com.
