So much of a financial plan revolves around family, with the hope and expectation that the plans put in place today may last for generations. From educating kids and grandchildren through the estate planning process to properly distributing and protecting a client's life savings, the plan works best when all generations of the family tree are on board.
When starting an engagement, some clients wonder why we create a family tree. It does not take them long to understand why having those details is so critically important in helping with their own financial situation. On that tree, you will find many issues near and dear to your clients' hearts that may impact their plans now or in the future. The family tree isn't always a beautiful tree full of foliage. Some have broken branches and unrealistic expectations of fruit.
The initial conversations around the family tree initially go two ways, up the tree to the client's aging parents and down the tree toward their own children and grandchildren. The conversations going up to the parents aren't usually about money, although it does come up. We start conversations about the parents in terms of our clients' role in their parents' estate plans. The most usual answer is, "Who knows?" That answer may not matter now, but it may later if you are the appointed person of a hot mess of an estate plan.
The best way to encourage your clients to have these conversations is by queueing up for them questions that they should ask their parents. The first and most relevant is asking if they have any role in the administration or closing of their estate plans. We warn them that old-school (a.k.a., useless) estate plans typically have the eldest child in charge and the plans have not been updated in years. Sadly, this is exactly what is most common when we ask.
Your advice may be invaluable if your client can prevent a future calamity with them in charge. In our firm, we will offer to help in reviewing their parents' plans as an extension of the service we provide to our clients. Our view is that anything that impacts our clients within our areas of expertise is within the scope of a financial planning relationship.
Descending the family tree to children is an informative conversation. You will learn so much about what is arguably most parents' most valuable asset: their kids. The conversations will lead into their children's lives as it impacts your client during their lifetime and in their estate plan, trust plan and family governance plan. These conversations are extremely valuable for your larger clients and those with closely held business interests or assets intended to span generations, like real estate or private investments.
Do not assume that your clients with a family business have carefully planned for the succession of that business and the division of assets upon their passing. I am surprised how frequently I see an old estate plan that still divides all property equally among the children without accounting for how the business will be divided. Conversations about estate equalization and the value of the business are often valuable when there are one or more children who are capable and willing to carry on as the successor leader of the family business.
It's also possible — and sometimes recommended — to have nonfamily employee owners of that business. These nonfamily leaders, particularly those with a long history of running the business and keeping shareholder and family issues separate, could be invaluable. The smaller the business, the more difficult this is to accomplish.
The state of the family
For our clients with older children, we typically suggest a family meeting and give the adult children a brief state of the union as it relates to their parents' financial affairs and estate plans. It is surprising how few of our clients take us up on the offer to host a family meeting.
These meetings can be simple and generic or finely detailed, and are best when completely tailored to each client's desired outcomes. Typically, these meetings occur when a client's children have asked about their financial situation or whether they have a current estate plan … and those are good questions. But parents are also well served to have these meetings to give everyone a general idea of how things will flow and who will be in charge. This is encouraged if the plan is an asset protection type of plan with independent trustees. If the independent trustees are family members, it may make sense to invite them to attend.
Families with high net worth may also appreciate a conversation about family values. What would your client like their family legacy to be remembered as? This conversation with the clients can be revealing, and is where patriarchs and matriarchs can influence the lives of future generations.
Most children ask about their parents' financial situation because they care and want to make sure that their parents are sound financially and are prepared for the changes that living a long time inevitably brings. Savvy adult children want to make sure that estate documents are current and in good order, that the chosen fiduciaries are aware of their current and future responsibilities, and that the client is doing whatever they can to protect their assets from predators, creditors, and the taxing authorities. Greedy kids want to know how much the client has and when they can get their hands on it.
Discovering this early in the process could also be immensely valuable to the family as it relates to how to structure wills and trusts and the future governance of assets. Thankfully, I've not met many families whose children are obsessed with greed.
We also recommend that your clients turn the tables on your children, to see that their financial affairs are in order. It's not uncommon to find that people don't pay much attention to their financial matters when they are young and building a career, family or business. The truth here is that parents also care about their children's financial well-being and want to see them succeed.
So, we believe that parents also have the right to invade and ask some very blunt personal questions. Questions such as: How old is your will? Who is the guardian of your minor children in the event you both pass? Do you have enough life insurance? I'm not suggesting that you become their financial planner or probe beyond their comfort level of sharing … but that you assess their knowledge level and let them know that your team is willing to help educate and solve for them.
Bridging the generation gap
Some of our best clients have told us that the knowledge gap regarding personal financial matters between them and their children is daunting. Colleges and universities still do not offer basic training on personal finance, so most kids learn on the fly from the crap they see on social and traditional media, or by watching their parents. Our reality is that our clients are typically very successful, and sometimes the children feel unempowered and in many cases like they'll never get there. This is especially true for those with children under age 40.
A core part of your financial planning offering should also extend to the children of your clients. This may be delivered in many forms — one for younger adults just starting out, for instance, in the form of education and assistance with basic stuff like beneficiary elections, benefit choices, and a cash flow management system. For those a little further along in life, more comprehensive financial planning is needed.
Note, I suggest more financial planning is needed, not necessarily asset management. I have to say that because too many wealth managers still feel that their value add is to manage money. There are plenty of young adults who do a fine job on their own or who get reasonable guidance through many forms of services. When their savings and investments become more significant, they too may reach out for help. But until then, financial planning may be their most pressing need. Even the young tech-savvy adult who may be a supersaver and thinks they are an investment master is often clueless about wills and trusts, asset protection, insurance, and tax planning.
We have also learned when dealing with the younger generations that "Grey Haired Johnny" should stay away from these meetings or conversations. You may have a hard time communicating with your clients' children if you look like their parents, sound like their parents, and say the same things as their parents. This is where your wealth management practice will benefit from having young, talented staff. They may be more likely to be heard and understood. All your client really cares about is that their children are doing the best that they can for their assets and families, and leave fewer gaps in their financial plans that may backfire all the way up to the parents.
If you have read my articles before, you know that I am an advocate for serving your most sophisticated clients and that you limit your services to smaller clients. Unfortunately, the families of your best clients are frequently small. But I believe if you view them as an extension of your best clients, you will find the benefits and merits of adding them to your "A" client list.
