Just 1 in 5 affluent investors use parents’ advisor

Among affluent investors, only one in five uses the same advisor as their parents, according to the Cerulli Edge: U.S. Retail Investor Edition. Advisors must reinforce the value of their services early in the relationship and in times of unique difficulty to strengthen and retain client relationships for the long term, the report said.

Maintaining a relationship across generational divides is a “win-win” for both investors and the advisory firm itself, the survey pointed out. Among those wins? Young investors receive the benefits of an advisor who is already familiar with the family’s financial situation, and the advisor has a chance to preserve the account for the next generation.

Despite these advantages, the research shows that more than 90% of affluent investors who use their own advisor did not consider their parents’ advisor in their selection process, and just 6% gave their parents’ advisor even the slightest consideration. The increasingly mobile nature of the younger demographic means that they are more likely to switch advisors, unless the firm itself really gets to know them and their financial needs, the report pointed out.

“While they may begin as a sort of “marriage of convenience,” advisors can create long-lasting relationships with their clients’ children,” said John McKenna, research analyst, retail investor, Cerulli Associates. “Advisors whose clients have financially interested children should work with them—either helping them with their own financial plans or directing someone else within the firm whose life experiences align with these clients to join the advising team,” he added.

For parents, having family-level conversations can smooth out potential future trouble spots in terms of inheritance or financial support, should misfortune befall either generation. “More than ever, involvement in financial discussions for wealth planning is becoming a ‘need to have’ rather than a ‘nice to have,’ and with an increasingly affluent Millennial demographic, advisors cannot afford to squander such business-expanding opportunities,” McKenna said.

Why clients don’t stay with parents’ advisors

There are various reasons affluent clients often decide not to continue the relationship with their parents’ advisor. For example, MDRT member Steve Plewes believes that one of the reasons is that wealthier heirs likely have more options or choices for where they get their advice. They have access to more information than perhaps their parents did. Also, he said that in his experience, “the primary reason is that there was no relationship with the parent’s advisors. And generally, it could be a generational phenomenon,” added Plewes, with Personal and Professional Coaching, LLC.

Another MDRT member, Brian P. Walsh, said that there are two primary reasons affluent investors don’t stay with their parents’ advisor:

They already have their own advisor relationship
They have had little to no contact with the parents’ advisor

How to build client retention

To enhance the client retention, Plewes said that, in his experience, the number one step is for advisors to work hard to build relationships with the primary heirs. “Include them in all communications with the parents. Invite them to all functions. Essentially, treat them as if they were already clients. The more they know about the benefits of working with the advisor and how that will transfer with the wealth, the more likely the relationship will stick,” he said.

Advisors should start relationships with the potential heirs as soon as possible to help ensure client retention, added Walsh. This could be done most effectively by asking the clients’ permission to reach out to their heirs to start the discussion of the heirs’ current financial situation. “I would also recommend asking clients at the appropriate time to include the heirs into the discussion so that the client has an opportunity to express why the decisions are being made and to clearly communicate how the client would like the heirs to handle the money,” Walsh said.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com. 

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