It’s a challenge every financial advisor faces at one time or another.
Wonderful, wealthy couples who have been your most loyal clients pass away at a ripe old age. All the wealth they’ve accumulated is now transferred into a trust for the benefit of their children.
Best case scenario: The kids know you very well and are happy to let you continue managing assets in the trust.
Worst case scenario: They’re entitled brats who’ve never met you, don’t want to, and will fire you as soon as they get their collective act together.
It’s a given that you never want to lose assets. But do you really want to fight to hold on to trust assets if the beneficiaries are making your life miserable? How do you treat clients like a celebrity just like we treat financial advisors like celebrities?
(3 Ideas) How financial advisors can avoid becoming a commodity
That’s a tough decision. And it should depend on several factors.
First, how much fee revenue the account is bringing in, and whether it’s justified by the added time you’re spending in contentious meetings, phone calls and email conversations with these belligerent beneficiaries. If you can afford to terminate these problem accounts without taking a major hit to your bottom line, it might be prudent to cut the cord.
But if there’s a chance that, with a bit of work and finesse, you might be able to smooth these kids’ rough edges and turn an adversarial relationship into a win-win for both parties should you take it?
Maybe. But in an ideal world, you should never have to make such a choice.
Of course, you want to win high-net-worth clients. But usually, it’s better to have a larger and more diversified mix of clients than only a handful of multimillionaires.
Why? Say you have $500 million in assets spread across a hundred mass affluent and high-net-worth clients. If you lose one $5 million account, that’s only a 1% drop in AUM.
But if that same $500 million is spread across just ten $50 million ultra-high-net worth client accounts and one drops you, that’s a painful 10% AUM hit.
Of course, most one-percenters expect the highest level of white glove service from their wealth managers. But that doesn’t mean you should adopt a sycophantic attitude toward them or their children.
You’re not their butler. You’re not a courtier. You’re an experienced, highly qualified financial professional and you deserve to be treated as such.
It’s important to establish this balance of service and mutual respect from the very first moment you meet them.
Let’s take a closer look at these characteristics.
The "Hello" Test
I strongly believe that you’ll instantly know how a relationship with a prospect or your clients’ children will be when you have your first conversation.
If the “Hello” you greet them with on the phone conveys grace, confidence, professionalism and authority laced with a touch of humility, the client or beneficiary you’ll want to work with will appreciate your finesse and treat you with the respect you deserve.
Conversely, if they respond to your “Hello” with arrogance, impatience or hostility, you’ll instantly know that they’re expecting you to be groveling and subservient.
And this is bound to happen sooner or later, because some people simply aren’t nice or respectful regardless of how much money they have.
Unfortunately, these attitudes are becoming increasingly common among trust fund children and grandchildren.
They’ve never experienced the stresses of failure or faced the consequences of rude behavior. They’re so used to being fawned over that they can’t accept “no” for an answer. They only want to work with professionals who reflect their demographics and share their view of the world.
If after such bad experiences you still feel the need to win or hold on to what is sure to be an uncomfortable and cringeworthy relationship, perhaps it’s time for you to start reassessing your business model.
As an independent advisor, can you reduce your expenses or revenue goals or adjust your client acquisition goals to focus on those who may be wealthy but don’t demand a family office level of support?
If your clients are satisfied with the service and results you’ve generated for them and they’ve raised their children to be respectful, decent human beings, chances are good that the kids will keep you on as their trust advisor—if you proactively take steps to demonstrate your value to them early on.
Don't wait until they dump you
You should never allow a relationship with a wealthy client to reach a point where their kids have a reason to fire you when they become trust beneficiaries.
The biggest mistake you can make is taking the kids for granted, assuming that because you’ve successfully grown their parents’ wealth over the years you’ve earned the right to manage the assets for the benefit of their heirs.
You might be under the illusion that your clients have gushed about you to their kids. But it’s far more likely that your name has rarely, if ever, been brought up in conversation.
That will make for a very awkward first encounter. Even your most intricately choreographed “Hello” will fall upon deaf ears if the children see you as just one more relic of their parents’ past to be discarded along with their Hummel figurines.
The time to start cultivating relationships with heirs and trust beneficiaries isn’t when their parents have passed on. You need to start a lot sooner.
Bring value to their financial lives early on
Some advisors are just interested in managing their clients’ money. But this is a huge mistake, since this only gives you a limited view of your clients’ broader financial picture. If you don’t know where their money is going to eventually end up, you’ll be the last person to find out when it’s removed from your AUM.
That’s why it’s critical for you to sit at the table with your clients and their CPAs, attorneys and insurance agents when they’re making critical estate planning decisions, so you’ll know how, when and to whom they plan to pass on their wealth.
Use meetings and investment reviews as discovery sessions as well. Discussions of college and retirement planning, charitable giving, and legacy planning should naturally create opportunities for you to ask your clients how their children fit into these plans, and whether there are any specific challenges—such as a child with special needs or one with substance abuse issues—that they’ll need to address financially after they’ve passed on.
Better yet, offer to meet with your client’s children early on to teach them financial skills they’ll use throughout their lives. A good time to start is when they’re entering their freshman year in college and could use some help on budgeting and managing and monitoring expenses.
Once they graduate, offer free financial planning and investment advice to help them save for retirement, the purchase of their first home or their children’s higher education.
If your clients plan on transferring all of their wealth into a family trust at some point, you might want to convince them to get their used to being beneficiaries by funding a small charitable lead trust or donor advised fund (with you serving as investment adviser) that enables their children to use the income to contribute to their favorite nonprofit organizations.
The more beneficial facetime you have with the kids, the more likely they’ll see you as a trusted resource for sound financial advice, rather than just “Mom and Dad’s advisor.”
Another benefit of starting these cultivations early on is that you’ll learn right away whether these efforts will or won’t pay off over the long run.
If the kids reject your offers to help them or treat you badly, that’s an early warning sign of what they’ll be like as beneficiaries, giving you time to cut your losses and prepare for life without their trust assets.
Conclusion
To be successful as an independent advisor, you need to love what you’re doing and the clients you work with. Unless you’re a masochist, you shouldn’t have to put up with people whose antics give you heartburn or keep you up at night, even if they have eight-figure portfolios.
Unfortunately, even some of your best clients will have difficult children who will inherit their wealth someday. The earlier you find out whether you can earn these kids’ trust without having to bend over backwards for them, the longer you’ll have to determine whether fighting to hold on to the relationship is worth your time and effort.
Christopher Holtby is co-founder and Trust Educator at Wealth Advisors Trust Company, an independent trust company headquartered in South Dakota that is included in the 2022 America's Most Advisor-Friendly Trust Companies.