The Future of Wealth: Why Most Heirs Ditch Their Parents' Advisors
A staggering $120 trillion in wealth will be passed down to heirs over the next 25 years, according to Cerulli Associates. But here's the twist: only a quarter of these future beneficiaries plan to keep their parents' wealth advisors, according to a recent survey.
The survey, conducted among investors with at least $250,000 in financial assets, revealed a surprising trend. Only 27% of respondents, primarily widows and children, intended to retain their parents' advisors. This number drops to 20% for those who have already inherited their wealth, as reported in September.
So, why are heirs ditching their parents' advisors? It's not because they're embracing self-directed investing or digital products. In fact, half of the surveyed heirs already had their own advisors. The most common reason for switching advisors was the lack of a pre-existing relationship with the parent's advisor (28%). Only 14% of heirs said they didn't want to work with a financial advisor at all, and 10% cited specific investment needs that weren't met.
John McKenna, a research analyst at Cerulli, offers insight into this behavior. He notes that heirs who inherit wealth in their 40s or 50s have likely matured into wealth management clients and already have relationships with advisors. They're more likely to continue these relationships rather than start anew with a legacy advisor.
But what about the benefactors themselves? Are they happy with their heirs' decisions? Interestingly, while most benefactors are satisfied with their advisors' service, they're largely ambivalent about whether their heirs use the same advisors. Just over a quarter of surveyed benefactors wished their heirs would keep their advisors, while more than half were unsure or left it up to their beneficiaries. Seven percent didn't want their heirs to use their advisors, with the most common reason being the lack of a pre-existing relationship.
The crux of the problem, according to Scott Smith, senior director of advice relationships at Cerulli, lies in the reluctance of clients to discuss their estate plans with their families. Even among high-net-worth investors, 20% said they intended for heirs to learn about their wealth after their death. The actual number of procrastinators is likely higher, as 34% of high-net-worth heirs reported being told these details after their benefactor died.
Smith highlights a common misconception: benefactors believe they will discuss estate plans with their next generation before passing away. However, when asked, the next generation confirms that these conversations didn't happen. As a result, advisors may have limited opportunities to engage with heirs and explain their services. It's crucial for advisors to encourage clients to initiate these difficult conversations early on, ensuring heirs are well-prepared and less likely to panic when the time comes.
In the end, the key to successful wealth transfer is open communication and early involvement. By addressing these issues head-on, advisors can help heirs navigate the complexities of inheritance with confidence and ease.
