Strengthening client conversations around generational planning

This year’s Generations Project Survey shows that financial advisors may not know their clients as well as they think

Like religion and politics, money is a topic most people prefer to avoid in conversation. Our latest edition of the Generations Project Survey, which focuses on high net worth investors, confirmed this point.1 Only 17% of high net worth investors talked to their kids, including adult children, about their finances. That means 83% are not addressing this sensitive subject.

It is easy to understand why. Complex family dynamics — such as sibling rivalries and second marriages — can make such conversations fraught with tension. In the survey, we found that nearly a quarter of high net worth investors — 23% — were worried that inheritance and estate planning issues would bring conflict in their families in the future.

The good news for financial advisors is that investors are looking to them for help. The survey showed that 65% of high net worth investors want their advisors to engage with their adult children. Surprisingly, though, only a third — 33% — said their advisor currently works with their adult children.

For advisors, that suggests a clear opportunity. Certainly, advisors want to maintain a strong relationship with their primary client, which may be the individual in the family who acquired the family’s wealth. But with permission from the family patriarch or matriarch, or both, advisors can begin to reach out to adult children. Some investors are interested in having their advisors engage with their younger children, teaching them the basics of managing money and the values of saving and investing. We all know that families often switch advisors when the personal wealth transfers across the generations. Establishing a relationship with clients’ children, before the wealth transfers, can greatly increase the odds the next generation will want to continue a relationship with the family’s trusted advisor.

If there is significant conflict within the family about managing the family wealth, advisors may feel ill-equipped to address these issues. But there are resources that advisors can tap in their communities that can help negotiate family conflicts. Advisors may find it well worth their while to partner with experts on negotiating family tensions. As part of our Whole Family Advising service, we have partnered with Dr. Richard Orlando of Legacy Capitals, who draws on his considerable experience and expertise in this area to coach advisors on how to lead multigenerational family discussions. Helping to resolve family conflicts over money can further cement the relationship an advisor has with the family.

Strengthening conversations

The survey also suggested two additional areas where advisors could strengthen their conversations with clients. The first is related to risk. We found that only 39% of high net worth investors who work with an advisor feel their portfolios are extremely well-designed for risk. That means 61% don’t feel highly confident their investments are ready to withstand volatile markets. Surprisingly, only 43% of these investors said an advisor has ever spoken to them about investment strategies.

Of course, advisors speak to their clients about investment strategies and risk management all the time. The survey results raise the question of whether clients are hearing — and most importantly, understanding — what their advisor discusses with them.  I believe two ways to avoid this problem are to stop using investment jargon and to always test for understanding. Asking clients for their sense of how you are managing their investments and helping them avoid risk can help ensure that they comprehend and have fully bought into the strategies you are recommending.

Imagining the future

The other important additional finding of the survey is that only a quarter — 24% — of non-retired high net worth investors knows when they plan to retire. That is a concern because people with a set retirement date in mind generally do more to prepare for retirement. You don’t have to convince your clients to pick a date, but for clients who haven’t given thought to when they’ll stop working, it’s important to discuss what their life goals are. Asking about the lifestyle they hope to lead in their future years — whether it be frequent travel, spending more time at second homes, or becoming more engaged with, or a bigger contributor to, their favorite charity — will help you design the financial plan that can make those dreams come true.

Some investors say they never want to stop working. But even with this group it’s important to discuss how they might plan to take distributions from their savings and investments in their later years, so they can effectively address the tax and other consequences of how they take distributions.

Always be asking

Overall, I think the main conclusion advisors can draw from this survey is that it’s never wise to assume you fully understand how your clients think about their investments. By constantly asking questions about how clients are feeling about their finances and how satisfied they are with the service they’re getting, advisors can uncover any unmet needs and take steps to address them.

1 The survey, conducted by OppenheimerFunds and an outside research partner, was released October 1, 2019. On May 24, 2019, Invesco acquired Massachusetts Mutual Life Insurance company’s asset management affiliate OppenheimerFunds. All research for the Generations Project was conducted prior to May 24, 2019.

Important information

Blog header image: Rob and Julia Campbell / Stocksy

The opinions referenced above are those of Brian Levitt, Global Market Strategist, as of Oct. 1, 2019. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.

Brian Levitt is the Global Market Strategist, focusing on North America, for Invesco. He is responsible for the development and communication of the firm’s investment outlooks and insights.

Mr. Levitt has two decades of investment experience in the asset management industry. In April 2000, he joined OppenheimerFunds, starting in fixed income product management and then transitioning into the macro and investment strategy group in 2005. Mr. Levitt co-hosted the OppenheimerFunds World Financial Podcast, which explored global long-term investing trends. He joined Invesco when the firm combined with Oppenheimer Funds in 2019.

Mr. Levitt earned a BA degree in economics from the University of Michigan and an MBA with honors in finance and international business from Fordham University. He is frequently quoted in the press, including Barron’s, Financial Times and The Wall Street Journal. He appears regularly on CNBC, Bloomberg and PBS’s Nightly Business Report.

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