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Advisors can be forgiven if they’ve reached a saturation point regarding consumption of commentary and data pertaining to the great wealth transfer.
With an estimated $84 trillion set to flow from baby boomers to their heirs and with many advisors likely counting boomers as the majority of their client bases, it’s fair to say astute advisors are hip to great wealth transfer goings on. It’s also fair to say that most advisors have approached the issue from the perspective of their boomer clients.
Sure, there are some that have brought up the issue of bringing the heirs to the table, which is smart business. More should follow suit. Obviously, there are no guarantees that when a client passes on that their children will stick with the same wealth management firm, but advisors can a long way toward earning that business by being proactive and making heirs feel valued even if they’re not official clients.
In good news for advisors, recipients of inheritances need advisors because many readily admit to not being prepared to handle a windfall.
Windfalls Are Nice, But Planning Helps
Regardless of the amount, it’s always nice to inherit money. It’s even better when the right plan is in place and the planning is derived from working with an advisor. The time for advisors and heirs to plan is now because data indicate more than half of millennials expect to inherit cash and assets over the next five years and many, including other generations, aren’t ready.
“Most Americans (72%) say they're not prepared to manage a large financial windfall. Business owners felt similarly with 69% admitting they're not completely confident about handling an inheritance,” according to Citizens.
The Citizens survey contains some other interesting findings. Twenty-nine percent of those polled say it would take an inheritance of at least $1 million to work seek a professional money manager while significant percentages said they’re not include to seek such advice upon inheriting money because they don’t believe the industry has their best interests in mind.
“Many people (83%) don't think financial advisors or bankers have their personal financial goals in mind when providing advice. Business owners have similar levels of skepticism, with 79% who said the same,” according to the poll.
Instead, some younger recipients of inheritances are turning to questionable sources for advice, indicating that the opportunity is there for advisors to make inroads, but it’s essential to make the conversation about the prospect and the benefits they’ll realize from professional advice.
Understanding Matters
Inheriting money can open a lot of doors for the recipients and that includes both important financial “tasks” and discretionary indulgences.
“Despite the uncertainty about being prepared for an inheritance, Americans have a range of ambitions they'd pursue if they suddenly had the means,” observes Citizens. “Among those surveyed, 60% said they would invest it, 51% would pay off debt and 43% would put it toward a large debt payment. Other big plans included starting a new business (34%) or paying for a relative's education (33%).”
Bottom line: many prospects have credible ambitions and goals for what they’d do with a windfall, but many don’t know that an advisor can help them with items such as growing the inherited capital, tax issues and debt reduction. The Citizens survey is proof positive that advisors and recent recipients of windfalls are potentially matches made in heaven. It’s just a matter of showing and proving trust and value.