Much of financial planning revolves around family, with the hope and expectation that plans made today can last for generations. From educating children and grandchildren through the estate planning process to properly distributing and protecting a client’s life savings, a plan works best when all generations of the family tree are involved.
At the beginning of the engagement, some clients wonder why we create a family tree. It doesn’t take long for them to understand why having these details is so critically important to helping their own financial situation. In this tree, you will find many issues near and dear to your clients’ hearts that may affect their plans now or in the future. A family tree is not always a beautiful tree full of leaves. Some have broken branches and unrealistic expectations of fruit.
Initial conversations around the family tree initially go two ways, up the tree to the client’s elderly parents and down the tree to their own children and grandchildren. Conversations with parents are usually not about money, although they do happen. We start talking about parents in terms of our clients’ role in their parents’ estate plans. The most common response is, “Who knows?” This answer may not matter now, but it may later if you’re a hot mess with an estate plan.
The best way to encourage your clients to have these conversations is to have a queue of questions for them to ask their parents. The first and most pressing question is whether they have any role in the administration or closing of their estate plans. We caution them that old-school (aka junk) estate plans usually have the oldest child in charge and the plans haven’t been updated in years. Unfortunately, this is exactly what we are asked most often.
Your advice can be invaluable if your client can avoid future trouble with them. At our firm, we offer assistance in reviewing their parenting plans as an extension of our services to our clients. In our view, everything that affects our clients in our areas of expertise falls within the scope of the financial planning relationship.
Allowing the children of the family tree is an informative conversation. You’ll learn a lot about what parents most treasure: their children. Conversations lead into their children’s lives because it will affect your client’s lifetime and their estate plan, trust plan, and family management plan. These conversations are extremely valuable for your larger clients and those with close business interests or assets destined for generations, such as real estate or private investments.
Don’t assume that your family business clients have carefully planned the succession and division of assets after they pass. It amazes me how often I see an old estate plan that still divides the entire estate equally among the children, with no indication of how the business will be divided. Conversations about estate equalization and business value are often valuable when there is one or more children who are able and willing to continue as the successor leader of the family business.
It is also possible – and sometimes recommended – to have non-family co-owners of the business. These non-family leaders, especially those who have the ability to run a business and separate shareholder and family concerns, can be invaluable. The smaller the business, the more difficult it is to implement.
family situation
For our clients with older children, we usually offer a family meeting and give the adult children a brief state of the union as it relates to their parents’ financial affairs and estate plans. It’s surprising how few of our clients recommend us for hosting a family reunion.
These meetings can be simple and general or very detailed and are best when completely tailored to each client’s desired outcomes. Typically, these meetings are held when the client’s children have asked about their financial situation or if they have a current estate plan… and those are good questions. But parents are also served by holding these meetings to give everyone a general idea of how things will go and who will be in charge. This is encouraged if the plan is an asset protection type plan with independent trustees. If the independent guardians are family members, it may make sense to invite them to attend.
High net worth families may also appreciate talking about family values. How would your client want their family legacy to be remembered? These conversations with clients can be revealing, and this is where patriarchs and matriarchs can influence the lives of future generations.
Most children ask about their parents’ financial situation because they care and want to make sure that their parents are financially sound and prepared for the changes that life inevitably brings. Savvy adults want to make sure that the estate documents are current and in order, that the chosen fiduciaries know their current and future responsibilities, and that the client is doing everything possible to protect their assets from predators, creditors and tax authorities. Greedy kids want to know how much the client has and when they can get their hands on it.
Discovering this early in the process can also be very valuable to the family as it relates to the will and trust structure and the future management of assets. Fortunately, I have not met many families whose children are obsessed with ingratitude.
We also recommend that your clients turn the tables on your children to see that their financial affairs are in order. It’s not uncommon to find that people don’t pay much attention to their finances when they’re young and building a career, family, or business. The truth here is that parents also care about their children’s financial well-being and want to see them succeed.
So we believe that parents also have the right to step in and ask some very blunt personal questions. Questions like: How old is your will? Who is the guardian of your minor children if you both pass away? Do you have enough life insurance? I’m not suggesting that you become their financial planner or probe their comfort level to share… but rather that you gauge their knowledge level and let them know that your team is ready to help educate and resolve them.
Bridging the generation gap
Some of our best clients have told us that the knowledge gap in personal finance between them and their children is staggering. Colleges and universities still don’t offer basic training in personal finance, so most kids learn the crap they see on social and traditional media, or by watching their parents. Our reality is that our clients are usually very successful and sometimes the kids feel powerless and in many cases like they will never get there. This is especially true for children under the age of 40.
A core part of your financial planning offering should also extend to your clients’ children. This can take many forms – one for young adults just starting out, for example, in the form of education and assistance with basic issues such as beneficiary elections, benefit choices and cash flow management systems. For those who live a little longer, more comprehensive financial planning is needed.
Note, I suggest the need for more financial planning, not necessarily asset management. I would have to say that because too many wealth managers still think that their added value is money management. There are plenty of young people who are doing well on their own or receiving reasonable guidance through many types of services. When their savings and investments become more important, they can also apply for help. But until then, financial planning may be their most pressing need. Even a tech-savvy young adult who may be a super saver and thinks he’s a master at investing is often clueless about wills and trusts, asset protection, insurance and tax planning.
In dealing with the younger generations, we have also learned that “Grey John” should avoid these meetings or conversations. You may find it difficult to relate to your clients’ children if you look like their parents, sound like their parents, and say the same things as their parents. This is where your wealth management practice will benefit from having a young, talented staff. They are more likely to be heard and understood. Your client only cares that their children do the best they can for their assets and their families, leaving fewer gaps in their financial plans that could backfire on their parents.
If you have read my articles before, you know that I am your most sophisticated client service attorney and that you limit your services to small clients. Unfortunately, the families of your best customers are often small. But I believe that if you treat them as an extension of your best clients, you will find the benefit and value of adding them to your “A” client list.
