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Of all the challenges for financial advisors, perhaps the most daunting is persuading clients to discuss their finances with adult children and other family members. Just because a conversation is difficult doesn’t mean you shouldn’t have it, however. A recent New York Timesarticle provided a reminder of the importance of these conversations, outlining the disruption and heavy price heirs can pay when they don’t happen.
Despite this, a U.S. Trust study in 2011 found that among affluent Americans, only half had fully disclosed their wealth to children and just on- in-three said their heirs fully understood their wishes on how to divide personal property.
Every financial advisor sees clients’ lack of communication with family members as a problem. Here are five ways one group of successful advisors is addressing this gap.
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The barriers to family conversations
I recently hosted a roundtable with eight financial advisors who deal with high-end accounts of two million dollars or more. They identified four major reasons that clients resist talking about finances with their adult children.
- First is the need by some type-A personalities for control. For some clients, talking about finances with children means that they may have to answer questions and raises concerns that they might sacrifice some of their freedom to change their minds down the road.
- In addition, aging clients are sometimes already worried that their children may attempt to take over their finances. Those clients feel threatened by any conversation about their financial situation.
- Next, some clients are concerned that talking about the disposition of their assets may lead to acrimony among children who feel hard done by. Rather than confront this disappointment now, it’s easier to simply say nothing.
- Procrastination can also lead to these conversations being postponed. For many clients, talking about family finances is something that’s easy to put off.
In discussing how to overcome these obstacles, the advisors identified five strategies – offer to facilitate the conversation, ensure that clients feel in control of what’s talked about, start with small steps, enlist reinforcements and use third party support to make these conversations a priority.
Facilitate the conversation
Several advisors said they offer to facilitate family conversations on finances. These discussions have the potential to be very emotional – having a dispassionate third party can help smooth over rough patches and keep conversations on track. Set clear expectations both for clients and their family members – that’s one reason that a couple of advisors say they suggest preparing an agenda for the meeting and if possible sharing that agenda with family members in advance.
Ensure that clients feel in control
One advisor has had success by allowing clients to control what is discussed at family meetings. She sits down with clients and reviews a checklist of potential items for discussion; among the items on this list:
Estate plan and any trusts
Life insurance
Long term care and other insurance
Value of investments, assets and possessions
How current investments are allocated
Will
Executors
Power of attorney
Location of documents
Advanced health directive
Funeral arrangements
Special gifts
Legacy
She and her clients agree on the items to cover at the initial family conversation; she also offers to meet with clients in advance of the family meeting to preview what they’ll talk about. She has found that the initial conversation is by far the hardest – and after the first conversation, even clients that had some initial reluctance are generally willing to sit down with family members a second time and go into more detail about their affairs.
Start with small steps
Along similar lines, another participant at the round table mentioned that he’d modified an idea from an article that I wrote last year. That article profiled an advisor who had a client pass away, leaving his affairs in disarray. This advisor and the client’s daughters spent months tracking down all his accounts – and at the end of that time still weren’t certain there wasn’t money missing.
As a result of this experience, this advisor approached his top 50 clients and suggested that at their next meeting they bring in copies of all of their statements– not just those relating to investments, but also all their bank accounts, insurance policies and bills for cable, utilities, property tax and water. Working with his client, in 20 minutes he created a spreadsheet summarizing account numbers, addresses and phone numbers and contacts. After the meeting, he emailed this to clients, suggesting that they write in passwords and give it to their lawyer to go with their will.
The advisor at the roundtable adapted this idea and took one step further. After preparing this spreadsheet, he suggested to clients that they review this with their children. Few clients felt threatened by this; after all they were simply letting their family know where they held accounts, not getting into specifics of holdings. But the advisor went on to say that in some cases this first conversation broke the ice – and as a result of this that clients felt more comfortable going on to talk about the details of their finances on a subsequent occasion.
Enlist reinforcements
One advisor talked about the former CEO of a public company who was resistant to having this family conversation. In advance of a joint meeting with the client and his accountant and lawyer to discuss tax and estate planning, he called them to let them know that he planned to again raise this topic and to ask for their support for his recommendation. At the meeting, both the accountant and lawyer weighed in supporting the advisor’s suggestion, leading to the client’s agreement to that conversation.
In talking to his client, they agreed that it made sense to also invite his lawyer to sit in on the meeting. A couple of advisors at the roundtable mentioned that they’d talked to clients about getting their lawyers involved at the meeting – while this worked on some occasions, other times clients were resistant to paying the hourly rate for their lawyer to sit in. Whether or not clients’ other professionals participate at the meeting, don’t ignore the opportunity to enlist their support in making these conversations happen.
Use third-party support
The final strategy that was discussed around the table related to prompting clients to act by using examples of high profile people who’d passed away.
Something that causes clients to procrastinate is the sense that there’s no urgency to have these conversations. One advisor mentioned that he’d struggled to get a business owner in his 50s to agree to focus on estate planning until someone the same age at the client’s golf club had a heart attack and died. Another advisor had recently talked to a client about tax planning using an article on how the sudden death of James Galdofini of The Sopranos fame had left his family with an unnecessarily high tax bill.
When I mentioned the recent New York Timesarticle on the price that one family paid for poor communication, a number of advisors asked for a link to the article, so that they could use this in conversations with clients with adult children.
As you think about your calendar for the fall, write down the names of five clients with adult children who haven’t had conversations about their finances. When you meet with those clients, see if some of these strategies can persuade them to move forward on these discussions. You’ll not only be doing the right thing for your clients, but you will open lines of communication with your clients’ children that will stand you in good stead down the road.
conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries, go to www.clientinsights.ca. Use A555A for the rep and dealer code to register for website access.
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