Some financial advisors may be waiting to connect with clients’ millennial and Generation Z children until they’re closer to inheriting their parents’ wealth or further down the road on building their own. Yet, recent research shows that now is the ideal time to form trusted relationships with clients’ younger family members – not only to help them grow their financial confidence but for advisors to ensure the long-term sustainability of their practices.
As much as $700-billion in financial assets is set to be transferred to the next generation in Canada by 2026, according to J.D. Power’s 2021 Canada Full-Service Investor Satisfaction Study. However, this transition is not positive news for all advisors. According to recent research from Cerulli Associates Inc. in the U.S., more than 70 per cent of heirs are likely to fire or change financial advisors after inheriting their parents’ wealth.
Data like these are unsurprising, says Janine Guenther, president of Dixon Mitchell Investment Counsel in Vancouver. When the focus of conversations with clients is on performance targets or portfolio size, asking about their family can sometimes be left out of the conversation.
“Some advisors I’ve seen, they just work with the parents and open up an account for the kid, but they never have a conversation with the kid,” Ms. Guenther says. “Roll it forward, the kid has joined a company, started investing in their pension plan or a matching plan, and then suddenly, the transfer [of the account] comes out of the blue.”
Indeed, according to the J.D. Power report, only 23 per cent of pre-baby boomer and baby boomer investors say their advisor initiated a conversation between clients and their beneficiaries – conversations that have “a significant effect on investor satisfaction.”
“An important part of your offence to grow the firm’s assets is to have a good defence, and that means that you have to take care of the whole family and not just the ones who have the money today,” Ms. Guenther adds.
Creating a connection with the next generation starts by finding common ground and doing your homework. For example, Ms. Guenther says that during intergenerational conversations, millennials have been looking for more strategies around the use of environmental, social and governance (ESG) factors. As such, she notes that her firm has been focusing on integrating ESG factors into its investment analysis and portfolio building as well as offering webinars on this topic, which has helped spark further engagement.
Introductions can also start even younger, says Kathy McMillan, director, wealth management, investment advisor and portfolio manager at Richardson Wealth Ltd. in Calgary.
Ms. McMillan, who puts a focus on serving “households” and families instead of individual clients, has been working with the younger generation for years. She says these trusted relationships begin by asking clients questions about their children and offering to make time to provide guidance or educate them on basic financial planning topics.
For example, one client in recent years asked for advice on what her son should do with his $10,000 earnings from a summer job. Ms. McMillan suggested he come in for a meeting.
“We had several conversations about his goals in life, his intentions, what he was taking at university,” she says.
The son was so interested in the process that he asked to shadow her team for a day and subsequently ended up changing his major.
This family-based approach can pay off for an advisor in many ways, from making a difference in young Canadians’ lives to simplifying the process of building and sustaining a practice, Ms. McMillan says.
Susan O’Brien, senior vice-president, senior wealth advisor with BMO Nesbitt Burns Inc. in Calgary, also takes a family-focused approach to wealth planning, forming a connection with two and even three generations.
“If advisors have never met the beneficiaries, how do they expect them to have a relationship with them and why would you expect them to stay?” Ms. O’Brien says. “Personal relationships are really, really important because the millennial mind says, ‘I’m going to ask my friends, I don’t really know where to go, I don’t know what to do.’”
Following a family meeting to discuss the older generation’s estate or wealth plan, her team will touch base with adult children to assist them with their own concerns or provide them with digital content on various financial transition points, such as setting up a registered retirement savings plan or saving for their child’s education.
“Sometimes, the only thing we’ve done is get them the best mortgage rate ... and then we have a small savings program set up,” she says, adding, “you could have those relationships for life.”
PWL Capital Inc. is also looking to a digital strategy – from podcasts to YouTube channels and blogs – to help its advisors connect with the younger generation and provide them with an initial introduction to the firm’s advisors, says Brady Plunkett, an associate portfolio manager in Ottawa.
Advisors will then have exploratory conversations and work with these clients on financial literacy and a goals-based approach to financial planning and investing.
Mr. Plunkett says advisors who wish to start building relationships with the next generation should also be explicit in communicating the full scope of services available to families, as these may not be obvious to the original client.
Ms. O’Brien, for her part, adds that advisors should also be open to broadening the wealth planning conversation beyond the initial client by offering a plan to each adult family member. These may be simpler for the younger generation, she says, but will provide an introduction and a window into what’s important to them.
“The ‘evolved advisor,’ as I call it, is one who wants to meet all the family members, help them from the get-go, set them up for success, and make sure that when they inherit the money, they make really good decisions,” she says.