Three ways wealth advisers can manage expectations across generations

Advisers play an important role in inter-generational communication, explains Clarfeld’s director of trust services

For successful wealth advisers, it is essential to partner with client families to create multi-generational investment plans that incorporate family values and financial goals, while building in thoughtful flexibility to allow for different investment perspectives. Advisers can start by breaking the taboo of talking about money and investing within families and help client families embrace differences ­— between parents, children and other relatives — to create living and flexible trust documents that will last for generations to come.

We all strive to be a trusted adviser who guides our clients through the financial life cycle of building wealth, producing income in retirement and preparing for wealth transfers through estate planning. We counsel clients early in life to invest to the limits of their risk tolerance with a move toward more conservative, income producing assets as they age. We all believe we are most successful when our clients follow our advice, yet sometimes our clients listen so well that their investment perspectives become hardened.

When clients embrace a conservative investment approach so well that they enshrine it in their estate plans for future generations, they often defeat the very goal of wealth transfer, which is to build and grow wealth for those next generations. Those next generations may instead look to change a trust document with these restrictions, creating friction along the way.

Here are three things that advisers can do to engage client families over time and foster transparency and communication across generations:

Break the taboo 

All of us in the financial industry need to do more to educate our clients that talking about money and investing within our families is not taboo. Instead, clients should begin discussing money with their children early as part of sharing family financial values. Many children have a savings account and may have an education savings strategy. Advisers should help parents identify fun ways to speak about investments. Perhaps follow and graph performance of a ‘fun’ or more relatable investment — like the stock of a video game company they like — or use calculations of performance and yield as a way to educate and learn.

Advisers can coach clients to include adult children in regular investment discussions. This will continue the process of sharing investment values. There are other mutual benefits: adult children will become better prepared to step in when parents cannot manage their money any longer. In turn, advisers begin building that trusted relationship with the next generation.

Embrace differences

A critical component of a successful family investment meeting is listening. Older parents who are investing for income need their children to understand why. They must also learn what their children are thinking about and why. Did a child invest in crypto — and what are the results? Talk about retirement plans and even mortgages, so that parents can begin the wealth transfer process in ways that help younger adults maximise their own financial wellness.

The lesson here is if the senior generation does not articulate its financial values, it should not be surprised that those values do not transfer across the generations.

Create living and flexible trusts

Historically, advisers have informed clients that a well-crafted estate plan allows them to control what happens with their wealth after death. Today, most lawyers and advisers help clients create estate plans that reflect their goals and values and also create flexibility to adjust to changing family situations.

Today’s trusts need similar flexibility for investment management. We have seen dramatic changes in investments over the past few decades beginning with the prudent investment rules, through the growth in mutual funds and ETFs and now to crypto. A trust drafted in the 1980s could not have envisioned these changes. It is important that today’s trusts enshrine investment flexibility without focusing on specific assets classes or enforcing a narrow investment approach. Trusts can memorialise family investment values by addressing investment risk parameters, identifying a range of expected returns and preparing to weather market cycles and other factors that are crucial to building and growing portfolios.

The most successful advisers are those who can guide their clients through their financial life cycles and navigate the nuances of family by generating buy-in from all generations, facilitating thoughtful discourse and encouraging the creation of legal documents that uphold values, while allowing for growth and adaptations to the times.

 Joan Bozek is chief fiduciary officer and director of trust services at Clarfeld Citizens Private Wealth