In response to last week’s article on talking to clients about sensitive, “elephant in the room” issues, one advisor sent this email: “Great suggestions on how to raise difficult topics. Among my wealthy families, the elephant in the room is the difficulty getting parents to have open conversations with their adult children around financial issues and family succession.”
This issue is far from new – last year I wrote about “How five different advisors get families to talk about finances.” But a recent research report from UBS Wealth Management Americas reinforced the urgency to dealing with communication gaps around family finances. The financial and emotional cost when important topics go undiscussed is so great that in many cases, facilitating that conversation is the No. 1 way that advisors can make a positive impact in the lives of wealthy clients.
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The last taboo in family conversations
Today, many people talk openly about same-sex marriage and legalizing soft drugs, topics that 30 years ago were seldom broached in mainstream conversations. For many families, talking about plans to pass on wealth is today’s last great taboo.
Research among affluent families suggests that while most Americans have up-to-date wills, only half have discussed inheritance plans with their children. According to the UBS report, just one in three (34%) have let their heirs know how much wealth they have.
|
Assets of $250,000
to $1 million |
Assets over
$1million |
Have an up to date will in place |
78% |
87% |
Have discussed inheritance with children |
53% |
55% |
When the UBS researchers probed for the reasons that families hadn’t talked about financial issues, there was a clear divide between benefactors and heirs. Heirs felt that the lack of communication was due to a lack of openness in talking about money, while benefactors felt such discussions might lead adult children to count on their inheritance.
|
Barriers to open conversations about money
|
Benefactors
|
Heirs
|
Gap
|
Not a pressing issue |
43% |
31% |
12% |
Don’t want children to count on inheritance |
32% |
7% |
25% |
Don’t want children to feel entitled |
27% |
23% |
4% |
Don’t talk openly about financial issues in our family |
19% |
46% |
25% |
Among heirs who have received an inheritance, 34% wish their parents had done something differently and 74% plan to do something differently themselves. These are the top areas that heirs pointed to in which they’ll do better than their parents:
47% will keep their will up to date
43% will disclose the whereabouts of all assets
-
34% will proactively discuss plans with their heirs
-
34% will minimize taxes for heirs
33% will have a clear wealth distribution plan
Two final key findings from the UBS research:
-
60% of potential benefactors say that they would prefer to pass on wealth while living, with a quarter are planning to leave part of their wealth directly to grandchildren. The No. 1 way that parents offer financial support to adult children is by putting money into college funds for grandchildren.
-
Concern about outliving assets is a key barrier to having these conversations. Among parents highly concerned about outliving their assets, only four in 10 have talked about inheritance plans, compared to almost six in 10 who are not highly concerned about outliving assets.
An opportunity to demonstrate value
Last week, Bob Veres wrote an article on The Top 10 Differentiators for Advisory Firms. His No. 1 differentiator for successful advisors is their deep relationship with clients. One of the keys to building a deep relationship of trust is demonstrating a willingness to raise important issues, even when they may be uncomfortable and when there is no personal gain for the advisor.
Three years ago, I wrote about a U.S. Trust survey of gaps in estate and financial planning among wealthy Americans with assets of $3 million and above – and how one advisor discussed that survey with clients and prospects.
If you’re not sure how to approach clients on this issue, a New York Times article on the recent UBS research could help open the door to conversations. Titled “What’s Almost as Certain as Death? Not Talking about the Inheritance,” it presents the survey findings in a lucid and accessible fashion. An article like this one could help you raise the topic at upcoming meetings with clients and prospective clients who haven’t had open conversations with their adult children.
Just because clients haven’t acted doesn’t mean this isn’t a hot-button topic. Another finding of the UBS research is that 84% of parents of adult children said that it was important that the transfer of assets to their heirs go smoothly. Also, two-thirds said it was important that there be no hard feelings among their heirs about who got what or how much.
By making this subject a priority at meetings with clients who have adult children, your clients will be better off and your relationships will be stronger.
Dan Richards 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 commentaries, go to www.danrichards.com or here for his videos.
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