Assuring Longevity for Family Legacies

In the greatest wealth transfer in world history, American millennials and Gen-Xers will collectively inherit from their baby boomer parents up to $68 trillion over the next 25 years.

Already under way, this transfer—described in a recent report from consulting firm Cerulli Associates—involves some 45 million U.S. households, many of which are those of high-net-worth individuals such as physicians.

These heirs should be taking steps to take care of the wealth they’ll inherit. Yet studies show that about 70% of private legacies disappear by the end of the second generation after they’re bequeathed and about 90%, by the end of the third generation. The reason for this is that these heirs are far more focused on spending their inherited wealth than on preserving and growing it.

Understandably, they may not be capable of managing these assets themselves. But they also fail to make plans to hire quality advisors to do so—after firing the advisors who helped build the wealth they end up enjoying. Historically, nearly 66% of these heirs have fired their parents’ advisors, according to a study published in InvestmentNews.

Advisors aren’t blameless in this. Surveys show that only a small minority of advisors seek to include the families of their clients in planning discussions so they can form a relationship.

No less at fault are the boomer parents. Many wealthy individuals fail to involve their grown children in legacy planning or even to introduce them to their advisors. This is part of a broader failure to discuss inheritance with their kids in any detail; surveys show that most don’t.

Because these lapses, the stage is set for legacies of the current, great wealth transfer to dwindle rather than be sustained. To avert this unfortunate outcome, late-career physicians with grown children should consider these steps:

• Talk with your kids, fully and frankly. Impress upon them the importance of preserving and growing wealth to sustain it—for their use and for the use of their children.
• To the extent that a skilled advisor has played a role in helping you build your wealth (which should have been the case all along), detail that role to your kids, outlining the various services involved and how they’ve resulted in asset protection and wealth accumulation. Show them copies of quarterly investment statements and advisor communications, and discuss their role—which they should have--as advisors for non-investment matters such as estate planning.
• Explain what makes a quality advisor, including the principles followed by the advisor you work with. If this person is a fiduciary advisor (he or she should be, in your best interests), explain what this means: that the advisor is committed to always putting clients’ interests ahead of their own. This is only possible if advisors are serving clients’ interests rather than on earning lucrative commissions from selling clients the investment products they recommend—an inherent conflict of interest.
• Emphasize that the relationship between client and advisor is really a partnership, sort of like a pilot and a co-pilot flying the aircraft of clients’ wealth. Explain what your role has involved in working effectively with your advisor, demonstrating that just because you have an advisor doesn’t mean you’re not personally accountable and responsible.
• Involve your kids with your advisor at the earliest possible appropriate time. Opportunities for doing so are greatest if your advisor is a true wealth manager—someone who handles not just investments but also matters like estate planning, trusts and powers of attorney. If your advisor is setting up trusts for which your kids will be the trustees, it’s only natural to take them to these meetings.
• If your advisor offers college-planning services, take your kids to meet him/her to set up investments for this purpose for your grandchildren’s educations. Thus, they can see the advisor in action and can become acquainted with him/ her, and possibly develop a relationship of their own.
• For the benefit of your legacy, it’s essential to discuss with your grown children the financial consequences of your death and your spouse’s. It’s important that your heirs understand their responsibility for growing and protecting your bequests—for the benefit of their families and generations to come—and the importance of advisory relationships toward these goals. If you wait until you’re on your death bed, it’s virtually impossible to play catchup. Or, if you die suddenly without having “passed on” wealth-management values and your productive advisor, your legacy will probably suffer. If don’t feel your advisor has been truly helpful (and if that’s the case, why have you stayed with him/her?), then the challenge is to help your kids learn what to look for to hire one who’s a true fiduciary and a skilled wealth manager. Otherwise, your legacy could be in jeopardy.

David Robinson, a Certified Financial Planner, is founder/CEO of RTS Private Wealth Management, an SEC-registered firm in Phoenix that provides fiduciary services to help clients achieve their financial goals. His practice focuses on helping wealthy individuals with custom financial plans, using a holistic approach to grow/protect wealth, manage taxes, identify insurance solutions, prepare for retirement and manage estate plans.