HNW Family Wealth Planning: 5 Best Practices for Your Clients and Your Business

Sixty-eight trillion dollars. That’s the oft-quoted dollar amount of the Great Wealth Transfer—the transfer of wealth from the Silent Generation and Boomers to Generation X and Millennials in the coming decades. The Cerulli Report on U.S. High-Net-Worth and Ultra-High-Net-Worth says the figure is closer to $85 trillion by 2045. Regardless, the stakes are high for financial advisors and their clients, both who currently control the wealth and those set to inherit it.

As you might expect, such a seismic exchange of assets breeds opportunities for both growth and loss. There’s even a name for the tremendous potential loss: the Third-Generation Rule, which you may have heard as “shirtsleeves to shirtsleeves in three generations.” This adage posits that the vast majority of family wealth dissipates in three generations or less. This decline in fortune can usually be traced to poor planning, inadequate preparation, and/or a lack of education.

What does this mean for financial professionals who offer planning services? If done right, their book of business can continue to grow, perhaps exponentially. If not, clients’ losses or, worse, loss of clients will reflect directly on the advisors’ businesses. Thus, the opportunity is ripe for those advisors who master generational wealth management.

Here's what you need to know and do.

What is family wealth planning?

The main purpose of family wealth planning—also known as generational wealth planning, or estate planning—is to create a lasting financial legacy for the family, by accumulating, growing, managing, deploying, and preserving family wealth for future generations.

Family wealth planning may include investment management, charitable giving, and real estate and wealth transfer planning as well as some aspects of financial planning, like tax planning or retirement planning.

How does family wealth planning differ from financial planning?

Financial planning, the more well-known advisory service, supports clients in achieving short- and long-term financial goals. From saving for retirement or a second home to managing taxes and protecting assets, financial planners help clients identify goals and then create a roadmap to work toward those goals as circumstances evolve throughout the financial journey.

While financial planning is more about achieving personal goals, family wealth planning focuses on the next generation and aims to help family members and loved ones secure or continue to grow their financial future. Family wealth planning includes many elements of financial planning, along with the additional complexities of transforming wealth into a sustainable legacy. That may include business continuity, charitable giving, governance, and trust services, to name a few.

4 Common Challenges of Family Wealth Planning

As an advisor upholding the fiduciary standard, you’re not a stranger to helping your clients make emotionally charged financial decisions—convincing them to stay the course during volatile markets, or to set aside emergency funds for long-term care or other unfortunate expenses. Likewise, with family wealth planning, you will need to navigate difficult territories. Here are the most common challenges that you want to get in front of before they become significant obstacles.

Challenge 1: Client Comfort Level

Given the highly personal nature of family relationships, it’s not uncommon for this kind of wealth planning to elicit feelings of discomfort.

Sometimes the angst can be related to children, because the parents are uncomfortable sharing their financial information with their children or are worried that their children are not prepared to inherit the wealth. In other cases, the concerns are personal: they’re unwilling to give up control or aren’t comfortable with the thoughts of their own passing. Occasionally, it’s because they don’t how or when to begin the discussions.

Once these hesitancies are overcome—and they can be, with communication and education to alleviate their fears—clients will find that involving their heirs in the planning process is key to preserving their own legacy.

Challenge 2: Family Alignment

Financial advisors can map out and help execute a comprehensive, informed plan that covers all the bases. However, once the human element is included in the mix, the best-conceived plan can fall by the wayside.

Challenges can lie in aligning sometimes disparate objectives or views, whether it’s values (social responsibility) vs revenues, today’s reality vs. tomorrow’s dreams, or simply competing priorities or personalities. Not getting in front of unasked or unanswered questions can hold back decisions or lead to deadlock.

Challenge 3: Establishing a New Hierarchy

Once wealth is transferred to heirs using a trust or other entity, having clearly defined roles is key to maintaining family peace and financial success. Preserving the overriding family values that are at the core of family wealth can be challenging when competing ideas about the role of wealth, possible jealousies, quirky personalities, and other nuances are in play. What is the governance structure? Who will have authority? How will decisions be made? Will there be a family council? Maximizing the long-term potential and capabilities of family wealth while adhering to the original goals of your client is paramount.

Challenge 4: Dilution of Assets

As inherited wealth is divided among more heirs, leveraging the power of this family wealth across generations becomes a challenge.  Without an integrated plan and a commitment to adhere to it, divergent goals, values, and priorities can dilute family wealth and dissolve your client’s legacy.

These challenges can be addressed by consistently adhering to best practices designed to serve your clients and your business well. Below, we examine a few of those best practices.

5 Family Wealth Planning Best Practices

Best Practice 1: Embrace the Next Generation…Now

If today you are only talking to your clients and their spouses, you probably won’t need to manage the generational wealth transfer at all, because your clients’ children will most likely discontinue work with you when they inherit—on the basis that they don’t know who are, what you’re about, much less appreciate all the efforts you’ve made over the years to grow their parents’ funds.

To continue serving the family funds, and maybe even gain the children’s own business, you must proactively engage all stakeholders in the family and make family meetings a regular part of your service offering.

Family meetings and regular communication not only help your business by giving you an opportunity to engage with all the stakeholders in the family and learn their unique needs, but the meetings also encourage open discourse between your clients and their children so that they can align on the direction and have a smoother transition in the future.

Here are the top ways that financial advisors work to strengthen their relationships with their clients’ children:

Source: Cerulli Report: U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2021

Best Practice 2: Have All Paperwork in Place and Socialized with the Family.

Yes, it’s a given. But how often do you revisit your client’s important documents, including their will, durable power of attorney, health care directives, beneficiary designations, trust documents, etc. to ensure everything is up to date? This should be done annually at a minimum and ideally shared with heirs.

Hand in hand with this best practice: keep in touch with your clients’ other professionals, including attorneys, CPA, insurance providers (whether for life insurance or other insurance products). Nurturing these center of influence (COI) relationships is also a solid business-building strategy for you.

Best Practice 3: Educate and Align All Beneficiaries.

Educating your clients and their families can take many forms. For some, it can be the essentials of investing, for others it can be about the purpose of wealth, or how wealth can be used to have a positive impact on the world.

One of the biggest questions for the heirs is what do I need to do? Clearly go over how the transfer of wealth takes place and what will be required of the heirs at each stage. In the case of multiple heirs, you may want to determine the succession hierarchy in advance for a smoother transition process and to make for easier decision-making in the future.

The purpose of educating the next generation is two-fold: to align the family on goals and mission (possibly through the exercise of creating a written mission statement) and to prepare family members for the upcoming decisions and phases of wealth transfer.

Having informed, educated heirs who are aligned with the family values and goals and prepared to inherit is key to long-term success.

Best Practice 4: Take the Time to Communicate and Build Relationships.

Forging a strong relationship takes time. And, while your clients’ children no doubt share many similarities, they are individuals. Avoid a “one-size-fits-all” mentality when interacting with your clients’ heirs.

Stay in touch with your clients and their heirs—and not just regarding the account. Send a card celebrating a birthday or anniversary and holidays that hold special meaning to them.  Does a mention of their dog’s latest antics arise in every conversation? National Dog Day is in August; drop them an email and if you have a pup of your own share a picture of your furry friend. Are the markets volatile? Reach out and see if anyone has any questions. Or simply give a quick call to just “check in.”

This personal approach will resonate every time and demonstrate that you see them as people and not just numbers and portfolios. Show interest in what interests them and offer personalized support and guidance. And, over time, they may consider themselves your client as well.

Best Practice 5: For family business owners, start succession planning early.

Most entrepreneurs and business owners require little support from their wealth management advisors when beginning their succession plans. However, for a family business, you’ll wear multiple hats as you take the initiative to ensure that the family legacy continues to grow with the shift of responsibilities and ownership. The earlier plans are set in motion, the easier the transition, and in some cases, clients can retire earlier knowing that company ownership is on the right track.

The AssetMark Advantage

In an increasingly complex economic and financial environment, the services of financial advisors are more valued than ever before. As increasing numbers of investors find themselves in need of informed guidance and support, differentiating yourself is key to capturing your share of this burgeoning business.

There are a lot of assets in play, and this will only increase with time. Position yourself to take advantage of this generational wealth transfer opportunity by working with a firm that values your independence and equips you to support a diverse client base. Build your brand, using AssetMark’s integrated technologies, innovative products, broad-based investment solutions, and high-touch business consulting services. 

To learn more, talk to our team.