More than $40 trillion will be inherited over the next few decades — the largest transfer of wealth in history.
Forty-five percent of spouses who inherit will seek and find a different financial adviser to manage those funds. Once the surviving spouse dies, a whopping 98 percent of the inheriting descendants will move those funds to a different financial adviser.
Most likely, other trusted family advisers — including legal, accounting and insurance experts — will experience similar rates of attrition.
Family advisers can slow this significant outflow of business by creating meaningful relationships with entire families — during the life of the existing client. This can be done by thoughtfully engaging families in conversations that center on values, impact investing and the role of philanthropy in their lives.
In this way, advisers provide vitally important services; establish real and independent relationships with the spouses, children and other heirs of a family’s assets; and greatly increase the likelihood of maintaining those relationships as wealth passes from generation to generation.
Social investments resonate with heirs. In “All investing is impact investing,” which appeared in this space last month, I discussed the trillions of dollars flowing into investments that satisfy two bottom lines — financial as well as social or environmental. More recently, New York Times columnist David Brooks wrote that impact investing is entering the mainstream. An older generation used its (rigorous) business minds in one setting and then its (often sloppy) charity minds in another. Today more people want to blend these minds. Typically a big client, or a young heir, will go to his or her investments adviser and say, “I want some socially useful investments in my portfolio.” If the adviser has nothing to offer, the client leaves the firm.
Although many wealth management, estate planning and accounting firms state that they offer “philanthropic services” to their clients, not all of them have substantive training or experience within this important and increasingly complicated niche.
Only 41 percent of the high-net-worth clients participating in a recent study were fully satisfied with the philanthropic conversations they have had with their advisers. (These statistics come from The U.S. Trust Study of the Philanthropic Conversation.)
One reason for these low numbers may be that 71 percent of advisers broach the subject of philanthropy by focusing on tax considerations or wealth structuring, rather than on such topics as passing along important values, creating meaningful legacies or making a difference in a community or the world.
The study also found that only 14 percent of advisers raise with their clients the use of philanthropy to instill charitable values among the next generation. Yet nearly half of the clients feel it is important to involve children and grandchildren in such discussions.
Effective philanthropy is more than transactional. It can be transformational by helping families identify and share values, deepen existing relationships (or heal those that are wounded), and constructively work together to repair the world. Such probing inquiry can be difficult, however, and can raise challenging issues among family members. It can help to involve a skilled facilitator.
If you are a wealth creator or inheritor (current or future), ask your advisers if they have the hands-on experience to help your family discover and develop its philanthropic priorities — and the strategies and tactics to achieve them.
If you are a trusted family adviser, ask questions to determine your clients’ progress on their philanthropic journeys. Then, engage them in meaningful conversations. If you don’t feel fully prepared to delve into this specialized area, call on resources that specifically focus on the field of philanthropy — including community foundations and philanthropic advisers.
Being closely involved with the entire family of a client and understanding their philanthropic values and interests makes you an even better adviser. As an added benefit, it may even help your business.
Nonprofit of the month: Chanda Plan Foundation
Since 2005, the Chanda Plan Foundation has improved the lives of thousands of people with physical disabilities by helping them gain access to direct integrative services like acupuncture, massage, adaptive exercise and yoga, chiropractic care, etc. Due to either poverty or limits on insurance coverage, these healing services otherwise would not be available. The nonprofit also advocates for policy changes to help people with disabilities obtain more comprehensive treatment. iamtheplan.org
Bruce DeBoskey, J.D., is a Colorado-based philanthropic strategist working with The DeBoskey Group to help businesses, foundations and families design and implement thoughtful philanthropic strategies and actionable plans. He is a Teaching Fellow with Boston College’s Center for Corporate Citizenship and frequent keynote speaker at conferences and workshops on philanthropy.