Training can make financial advisers indispensable to UHNW families

Ultra-high-net-worth families aren’t very good at preserving intergenerational wealth. Their wealth advisers, meanwhile, aren’t very good at keeping these families as clients when a new generation takes over.

Outcomes around multigenerational wealth retention are dismal. Though the source for the assertion is uncertain, wealth managers hold that around 70% of families fail to pass significant wealth down to their children, and 90% fail to pass wealth to their grandchildren. When it comes to adviser retention, advisers say 66% to 90% of heirs spurn their elders' wealth managers. 

Ignoring this trend isn’t an option, not with an estimated $84 trillion of assets expected to flow to U.S. heirs by 2052, according to Cerulli Associates. At least 42% of that total will be passed down by individuals and families deemed to be high-net-worth or ultra-high-net-worth, Cerulli adds.  

Financial advisers often segment the wealth management market into three, four or even five tiers representing different levels of wealth. But for us, a more useful view of this vast and varied market is binary.

WHERE THE REAL CHALLENGE FOR UHNWS LIES 

On one side sits the majority of affluent people, whose primary financial objective is to live comfortably in retirement — and sure, maybe pass a little down to family and philanthropy. 

On the other side, and far fewer, are families with no retirement worries at all. For this group, the fear isn’t that they’ll run out of money during their lives, but that they’ll fail to pass their fortunes down in ways calculated to preserve and perpetuate the family’s wealth and legacy.

To fix that, these families must foster cohesion among family members to set common goals, responsibilities and boundaries. Not by living together (necessarily), but by identifying the purpose of their wealth and shared values, having governance structures in place for setting priorities, delineating roles, and productively working through grievances. 

Without this safety valve, most families will fail to agree on action items, disintegrate into nuclear units that communicate sporadically — and inevitably drift apart, depriving family subunits of the benefits of scale.

Fortunately, UHNW families are eager for advice. Two-thirds already have advisers, and another 27% engage advisers on a special-purpose basis around financial planning and asset allocation, according to the research firm Spectrum Group.

Through advanced training, advisers are able to learn to:

1. Better understand their multigenerational UHNW clients. Advisers need to effectively serve the needs of the whole family of their current clients. The coming transfer of trillions of dollars across the next generation, coupled with the reality that families often struggle to transfer wealth successfully across generations, creates a great need for advisers to build their skills in serving the whole family.

2. Effectively engage with these families leveraging our tools. The adviser should have the goal of becoming an indispensable member of the high-net-worth families they work with. An adviser can accomplish this by fully understanding the dynamics present in the client family and discovering the goals, values and priorities of your clients. 

3. Improve interpersonal skills to engage with families. Advisers need to develop the essential skills required to transition from serving just one primary individual client to serving the whole family. While many advisers understand the value of expanding their service to the whole family, many cite a lack of confidence or training in the skills required to navigate the interpersonal dynamics involved in connecting with each family member.  

4. Design and facilitate dynamic family meetings. There are benefits and obstacles of holding successful multigenerational family meetings with client families. Advisers need to design and execute multigenerational family meetings. This will include what questions to ask during prep calls with family members and handling challenging dynamics in family meetings.

It’s no coincidence that all of these points hinge on engagement and communication. Families that are large, wealthy and multigenerational can’t overemphasize the importance of clarity around shared values, the purpose of the wealth, governance and family cohesion.

Simply put, effective communication breeds understanding and cohesion, which help preserve wealth for the families — and ongoing mandates for their financial advisers. 

UHNW families are hard-pressed to break the cycle of wealth creation and destruction. Training programs equip financial advisers to help these families achieve and maintain a sense of shared purpose and stewardship around legacies that might otherwise dissipate once the founding generation has passed.

Richard Orlando is founder of Legacy Capitals. Gordon Ross is head of the Enterprise Group at Dynasty Financial Partners.