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Up to 90% of children fire their parents’ advisors after an inheritance. And Millennials represent 55 percent of assets held by investors who are “at risk” of leaving their current firm, according to a recent J.D. Power study. In this episode, you’ll learn three key insights that are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. Lean in as Paul addresses one of the main challenges associated with serving the next generation and how to turn it into an opportunity for long-term growth – namely, that many younger investors lack financial education.   Bridging the Information Gap with Clients’ Heirs This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. First, you’ll hear one of the main challenges associated with serving the next generation – namely that many younger investors lack financial education, and you’ll find out how to turn this challenge into an opportunity. Second, you’ll find out the single most important thing you can do to effectively teach your clients’ heirs about investing and the role that you play. And it’s probably not what you think! And finally, you’ll learn one great way to engage millennials in the process of learning about investing. So please read carefully. Because this episode could have a significant impact on your future success.   A cherished mentor It was my first semester at the Iowa College of Law, a top-tier law school in Iowa City, Iowa. I was sitting in the middle of the lecture hall for Contracts class. The professor was Alan Widiss, who was a co-author of several national treatises on Insurance Law. He also wrote the nationally used textbook that we happened to be using for this class. At the end of this particular class, he announced that he was looking for a research assistant. That the position required working 10 hours per week, and one of the benefits was that it would qualify the student for in-state tuition. I ran down to him at the end of class and asked if I could apply. We made an appointment for me to meet with him at his office. I got the job. My responsibility as research assistant was to find and photocopy all cases from around the country that mentioned uninsured or underinsured motorist insurance coverage. There were usually 30 or 40 cases each week. Each case was usually 5 to 15 pages long. He read them all, and then continually incorporated cutting edge cases into his multi-volume treatise on the subject. I admired Professor Widiss’s work ethic and his dedication to perfection within his profession. It’s 25 years later, and I still remember the little nuggets of wisdom that he mentioned. (Professor Widiss in 2001. He had been one of the foremost experts on insurance law.)   New investors need you to be a mentor I mention this story because mentors play an important role in our lives.  Your clients’ heirs probably need someone like you to teach them. I say this because the basics of financial planning are lost on many new investors. Only about a quarter of millennial investors demonstrated a basic understanding of how to manage their money, according to one study. Yet 69 percent said they believe they have a high level of financial knowledge. More affluent investors may have a better handle on financial factors, but that’s no guarantee they know or value the same things as their parents when it comes to managing their money. For advisors, this creates a two-fold problem: younger investors may not see the value that financial advisors provide, and they may have unrealistic expectations of what services they can expect from an advisor based on their investable assets. Education is a clear and valuable service that advisors can offer younger investors. You can and they should take advantage of early opportunities to do so. As clients’ children get older and reach their own financial milestones, from opening their first checking account to building a retirement strategy, advisors who take the time to sit down and provide education and guidance will also be nurturing an important future relationship. To help bridge this education gap, many advisors are leveraging their client portals to build a library of informative resources for newer investors. This also enables them to send timely materials personalized for an investor’s specific needs or questions. So, what is the single most important thing you can do to inspire your clients’ heirs to learn from you? There was a study presented at Wisconsin’s Annual Distance Teaching and Learning Conference in 2010. Researchers had asked their students this question: What characteristics are essential for effective teaching from the student perspective? Analyzing and combining reasonably synonymous characteristics, researchers isolated the top responses. What did students say was the most essential characteristic for effective teaching? ANSWER: Showing Respect. It turns out that for both online and face-to-face students, Respect was more important than any other characteristic. Students ranked it higher than knowledge or the ability to communicate and engage. In other words, you can have years of experience and be the absolute smartest financial advisor. You may have a whole alphabet of credentials behind your name. But when it comes to teaching your clients’ heirs about investing and about what you do, simply showing them respect is what they actually care the most about. For me, I remember being able to ask Professor Widiss anything. He never judged me or thought any question was too simple. In fact, one of the best answers I ever got from a teacher was when he answered my very basic question of “When exactly is a contract formed?” I had caught him walking back to his office on the way from Contracts class on day. (If you’re curious about his answer, he said that there is a moment in time when all the requirements for a binding contract happen, and then he snapped his fingers to demonstrate that at that precise point in time is when the contract is created.) Again, I was one of 120 students in his Contracts class, and we had been spending weeks talking about the nuances of contract creation and defenses to contracts. He showed me the respect of being willing to answer even the most basic-seeming question. Now, let me tell you a great way to engage millennials in the process of learning about investing. Anyone born between 1981 and 1996 (ages 23 to 38 in 2019) is considered a Millennial, and anyone born from 1997 onward is part of a new generation. Millennials are always looking to learn, and they respond well to mentoring and coaching programs. So, a great idea for you would be to start a mentoring program in which you teach them how to open practice accounts on the trading platform of your choosing. You can have them compete with each other on selecting stocks and mutual funds. In the process, you can not only teach them basics of investing, but also teach them the value that you bring as an investment advisor. Finally, I want to thank InvestEdge for providing some of the inspiration for this episode. They have a good article entitled “4 Reasons The ‘Great Wealth Transfer’ Keeps Advisors Up At Night.” It’s located here.   EPISODE REVIEW So, let’s do a quick review of the insights you and I discovered in this episode. In this episode, we heard one of the main challenges associated with serving the next generation – namely that many younger investors lack financial education, and we talked about how to turn this challenge into an opportunity. Education is a clear and valuable service that advisors can offer younger investors. Second, we learned the single most important thing you can do to effectively teach your clients’ heirs about investing and the role that you play. It was simply showing respect to these younger people. Third, I mentioned that a mentoring program might be a great way to get millennials engaged in learning about investing and also learning the value that you bring as an investment advisor. And speaking of reviews, please go to DynastyAdvisorPodcast.com/iTunes and type-in your biggest “take-away” or ‘aha!’ moment you experienced during this episode. You can do this now in the Reviews section and when you do it, iTunes will ask to rate this episode ... I hope I’ve earned 5-stars from you!   It’ll takes 3 minutes out of your day, but what you declare could provide you a lifetime of learning!    I hope our paths cross again next week for the Dynasty Advisor Podcast, the show dedicated to helping you use Family Dynasty Planning to keep your biggest investment accounts even after your wealthy clients have passed away. Please do whatever it takes join me next week because we’ll cover how to build trust with your clients’ heirs. If you can master this one thing, you’ll be way ahead of most other FAs! (And please promise me that you won’t misuse this information. Con artists use these same tactics, as you’ll hear in the next episode.) I encourage you to invite a friend or bring a study-buddy, because the next episode is pretty important. I ca

Creating a Family Dynasty takes more than some documents. There are intangible things that typically aren’t taught to families with less than $500 million. In this episode, you’ll learn three key insights that are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. Lean in as Paul shares a story from his childhood and also reveals how a family dynasty needs both technical things (like proper legal documents) as well as and intangible things like having a positive culture, shared values and ground rules for how it operates. The Importance of a Positive Family Culture This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. First, we’ll discuss the difference between laws on one hand, and social norms on the other, and why that’s relevant in the context of Family Dynasty Planning. Second, you’ll discover that you need both a dynasty trust and a positive family culture. Just like a stable society needs both laws and positive social norms). Third, you’ll find out one thing you can do this week to start implementing what you’re learning in these podcasts. Please read carefully. Because this episode could have a significant impact on your future success.   Laws vs. culture It was early evening. I was in the back seat of my step-dad’s Mercury Zephyr with my German grandma, Alma Meinen. My step-dad was driving. He went by the nickname “Dee,” because the guys in the Navy always butchered his last name of Deloughery. He was a big man who had been the feather weight boxing champion in the Navy as a teenager. My mom was sitting in the passenger’s seat. I had just played the alto saxophone in my first band concert, and we were just starting to drive away from the school. I rolled down the window because I saw one of my friends walking on the sidewalk. “Bite me!” I yelled to him. He looked shocked. My grandma looked shocked. My dad became instantly angry. And I wondered what just happened. You see, during the previous couple of days, the Sixth-Grade boys had been saying “Bite me” to each other. It was just what we did. I didn’t know what it meant, other than that it was a way of showing camaraderie and being “cool.” You know how young kids can be, right? My step-dad immediately said, “Don’t you ever say that again. We’ll deal with this when we get home.” And deal with it “we” did. I was grounded for a week, which wasn’t the real punishment. Having my parents that upset at me was enough. They explained how it shocked my grandma, and that we just don’t yell things like that in public. I didn’t figure out that “bite me” was a short version of “bite my [blank]” until years later. I tell this story because it’s relevant to our discussion of creating family dynasties in which your clients’ heirs continue to retain the investments with you, despite their inner urges to quickly spend it. You see, in society there’s a difference between laws, ethics and social norms. When I was growing up, there was no law against rolling down the window and yelling “bite me.” Unless you consider that a breach of the peace, which was and remains illegal just about anywhere. I supposed if a police officer had been standing there when the incident happened, I could have been given a citation of some sort as a juvenile and been made to perform some community service. What I really violated was the accepted ethics and social norms of my community. We were simply expected not to yell obscenities out of windows. And “bite me” was considered an obscenity in small town Winona, with a population of 26,000 people.   Multiple layers are needed to protect family wealth Here’s how this story is relevant. Let’s assume that your clients (and you) want your clients’ heirs to refrain from spending your clients’ investment accounts when your clients pass away. Your clients express that they worked hard for the money, and they don’t want it squandered on their heirs’ lavish lifestyles and unnecessary vacations.  So, you explain that multiple layers are needed to protect the investment accounts from your clients’ heirs’ greediness and sense of entitlement. First, you explain, you need the equivalent to a system of laws. This is done with a system of well-drafted estate documents. The cornerstone is a dynasty trust that prevents outright distributions and monthly allowances. This is the equivalent of having a law against breach of the peace. The second layer is to create a family culture that promotes productivity instead of laziness. A family culture is the equivalent of social norms that say we don’t roll down windows and yell obscenities at each other. The family culture treats the family as a team, in which each player contributes to the whole. The team players consist of each family member who is physically and mentally capable of being productive. The team consist of people currently able to contribute, as well as future generations who either are currently able to contribute, or will become able to contribute at some point in the future. The members of a football team aren’t forced to participate. It’s not slavery. But, if someone is part of the team, they contribute. It would be completely unacceptable in the middle of a game for a team member to say he’s “feeling lazy” and doesn’t “feel like playing today,” or to ask another team member to run the ball down the field because it seems like too much work. That sense of entitlement just doesn’t work in the context of a sports team. It also doesn’t work in the context of a dynasty family. In future podcasts, we will cover family culture in more depth, including creating a mission statement and a Family Code of Honor.   One thing to do this week The one thing you can do this week is to take a poll of your current clients. Find out which ones aspire to have a dynasty family, in other words a family that is financially successful for multiple generations. There is no sense in trying to apply this solution to a client who has no interest. Find the ones that are interested in learning more. Then just explain to them that you would like to work with them over time to take certain steps that will help put their families in a position to be successful for multiple generations. This will cement you in their minds as the person who is going to solve one of their deep-seated concerns, namely how their offspring will use the wealth.   EPISODE REVIEW So, let’s do a quick review of the insights you and I discovered in this episode. This week you learned the difference between laws on one hand, and social norms on the other, and why that’s relevant when talking about a dynasty family. We talked about dynasty trusts being the cornerstone of a well-drafted system of estate documents, and that it serves as the basic laws for a family. Second, you learned why having a dynasty trust is key to protecting your clients’ wealth from the greed and sense of entitlement of future generations. However, you can’t force future generations to work. You’re not creating a system of slavery. That’s why having a positive family culture is so key. Third, you discovered one important step you can take towards implementing what you’ve been learning in these podcasts. Call or email your wealthy clients. Say that you’ve been learning about how to create family dynasties, namely families that are successful for multiple generations. Ask if they would like you to share information as you learn it. The clients who are interested will really appreciate you reaching out to them for two reasons. First, this is actually a real concern for them, and second, because probably no one else is talking to them about this issue. And speaking of reviews, please go to DynastyAdvisorPodcast.com/iTunes and type-in your biggest “take-away” or ‘aha!’ moment you experienced during this episode. You can do this now in the Reviews section and when you do it, iTunes will ask to rate this episode ... I hope I’ve earned 5-stars from you!  It’ll takes 3 minutes out of your day, but what you declare could provide you a lifetime of learning! I hope our paths cross again next week for the Dynasty Advisor Podcast, the show dedicated to helping you use Family Dynasty Planning to keep your biggest investment accounts even after your wealthy clients have passed away. Please do whatever it takes join me next week because our topic will be how to bridge the information gap with your clients’ heirs. This is one of the challenges with serving the next generation of Generation X (which I’m from) and Millennials. I encourage you to invite a friend or bring a study-buddy. I can’t wait to connect with you then. In the meanwhile, all good wishes.  

Death is a major taboo. No wonder that most people want to be quick and to the point when dealing with who gets what when they die. In this episode, you’ll learn three key insights that are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. Lean in as Paul shares a story about how a direct distribution (which sounds simple on the surface) can actually turn into a fiasco in real life. Make this information work for you so you can double the lifetime value of your accounts and increase the value of your practice.     The Danger of Direct Distributions This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. First, you’ll learn what an outright distribution in a trust or will is. You’ll learn how to spot this in a client’s estate plan document. Next, you’ll find out why outright distributions don’t work, especially when dealing with significant wealth. Finally, you’ll learn how talk to your clients who have Wills or Trusts that give everything outright to their heirs. Please read carefully. Because this episode could have a significant impact on your future success.   Squabbling over $30 million I’m in Probate Court in Phoenix, Arizona. “Objection!” I said, as I stood up to break the opposing attorney’s rambling opening argument. “None of what the opposing counsel is saying is relevant to today’s hearing,” I said. The opposing attorney was an overweight man who loved to hear himself talk. Our clients were the two beneficiaries of their parents’ trusts. The opposing attorney represented the son and I represented the daughter. My client –let’s call her Clarissa -- had flown in from New York to attend this hearing. Clarissa was wearing a nice dress that looked like it was new. The hearing on this occasion concerned Clarissa and her brother’s dispute over division of their parents’ $30 million worth of investment properties. They were arguing over who should receive a particularly lucrative strip mall. I had tried to convince my client and the other attorney that it didn’t really matter who received what asset, as long as they each received roughly 50%. After all, whoever received the less lucrative commercial property could simply sell it and purchase a more profitable one. But they each had a story about how their father had promised that strip mall to them. Never mind that this was complete hearsay and is not admissible in court. This case dragged on for over THREE YEARS. Clarissa eventually fired me and hired two subsequent lawyers. The brother did the same, but I think he went through three more lawyers. During this entire time, the commercial properties had no clear owner. Tenants started to leave because the properties were not being properly maintained. Also, during this time, both the daughter and the son were anxiously requesting partial distributions from the trusts. They each went on vacations (though not together, I’m sure). They were spending the money as fast as they could get it. But because the properties were tied up in litigation, they were angry at each other for not allowing the properties to get sold faster. This story highlights a number of issues involved when a successful business owner doesn’t think through how the businesses will be transferred upon his or her death. In this case, $30 million of commercial properties were held in a limited partnership in order to save on estate taxes. Over the years, the estate attorney had focused solely on the estate tax issue, without any thought to the other details of what would happen when he client eventually passed away.   What’s a “direct distribution,” and why it matters … There were MANY bad results from this poor planning. However, we’re going to focus on what happened as a result of the trust and other documents providing for an immediate, outright distribution to the two beneficiaries. What do I mean by “outright distribution” or “direct distribution?” I mean that the trust documents simply say who is to receive what. PERIOD. There is no provision that the assets continue to be held in trust. There was no way of resolving conflicts outside of court. The drafting attorney, and the parents, ASSUMED that their kids would simply be able to work together and then receive $15 million of properties and be happy. Who wouldn’t be happy with a $15 million inheritance, right? What’s wrong with this? Most heirs go crazy when they know they are inheriting money. They figure out how to spend the money way before they actually receive it. There’s nothing wrong with this, per se. Spending money isn’t inherently evil. But these heirs usually don’t think about the second and third order consequences. Sure, they get to buy a nice house and go on some great vacations. But they also often end up getting to their later years without adequate retirement savings.   Clarissa was no different. She spent the money as fast as she could get her hands on it. She would now be retirement age. I haven’t spoken to her for years, do I don’t know her current financial situation. But I do know at the rate she was spending, she probably has only a small fraction of the $15 million that she inherited. So, again, an outright distribution is when the trust or will simply says that the assets are to be distributed immediately to the named recipients. If you’re talking about less than $500,000 that may be the best approach. Because it’s simply not cost-effective to hold less than $500,000 in trust indefinitely. The trustee fees start eating into the principal. Outright distributions simply don’t work when dealing with large amounts of money due to a psychological condition known as Sudden Wealth Syndrome. This isn’t a formal diagnosis; at least not yet.  But few people would deny that it exists. You can hardly go through a checkout line at a grocery store without seeing a tabloid about someone who won the lottery and lost the money. Or a successful celebrity who got into financial troubles or went nuts for no apparent reason. The reality is that coming into a sudden financial windfall changes a person’s reality. The financial windfall is usually occasioned by some sort of loss. It could be loss of a loved one. It could also be a divorce. Either way, all of a sudden, expenses that previously seemed impossible are now affordable. And people come out of the woodwork asking for money. Life is more complicated, with more to manage. It’s hard to know if the people around you care about you as a person or as a deep pocket. Also, when a trust or will provides for an outright distribution, it creates a sense of entitlement. And this is technically correct. The person is legally entitled to the inheritance. But, as the famous economist Adam Smith said, “Entitlement is such a cancer, because it is void of gratitude.” The person who is entitled to an outright distribution has no gratitude for what the money means. How hard did the parents work to build that wealth? What did the parents want to be done with the wealth? The child doesn’t care. She only cares that she’s named in the trust document and is entitled to the money. And she wants it NOW!   How to bring up this issue to your clients Finally, here’s how you can talk to your clients whose Wills or Trust provide for outright distributions to their heirs. The difficult thing here is that so most people have been indoctrinated to believe that if they have a Will, they have done more than most people to prepare for their eventual death – which is true. And they have been taught that Trusts avoid probate – which is usually true. We’re also living in an age when people distrust institutions – probably including representatives of financial institutions such as the ones you work with. People now tend to trust a total stranger to drive them somewhere (using Lyft or Uber), though they don’t trust government or religion. So, the solution is frankly to take a long-term team approach. First enlist the client’s estate attorney. But, many estate attorneys are cynical and don’t believe Family Dynasty Planning is possible. If that’s the case, bring me in or enlist another estate attorney who believes in Family Dynasty Planning. After you have an estate attorney on board, get a CPA on board as well. THEN, you’re ready to schedule a conference call with your client. And don’t attack the client. It may take time to raise the issue and have it marinade.   EPISODE REVIEW So, let’s do a quick review of the insights you and I discovered in this episode. First, you learned that an outright distribution is when the heirs are entitled to get their shares immediately. The shares are not held in trust on an ongoing basis. Second, you learned why outright distributions often don’t work. It has to do with psychology. Because the heirs are “entitled” to get their distributions, they have no gratitude or appreciation for what they are to receive. As a result, they are more prone to spend the inheritance quickly. Finally, you learned how to go about raising the issue of Dynasty Family Planning to

There’s probably a reason that wealthy, educated people tend to have fewer kids. Ha ha! Having kids is a lot of work. And for families with significant wealth, figuring out how to transfer that wealth to the next generations without greed and entitlement taking over is increasingly more complicated the more heirs are involved. Add some businesses or commercial properties to the mix and you have a mess. In this episode, you’ll learn three key insights that are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. Lean in as Paul shares a story about the complexity of having multiple heirs and a couple of strategies for dealing with this challenge. Make this information work for you so you can double the lifetime value of your accounts and increase the value of your practice.  The Problem of Too Many Heirs This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. You’ll discover why having a lot of heirs greatly complicates an estate plan, especially when one or more businesses are involved. You’ll learn the difference between single pot and separate pot trusts (and why this matters). Finally, you’ll hear how to suggest appointing a corporate trustee to your clients with multiple heirs. This would be a great referral if you have an affiliated trust company. Please read carefully. Because this episode could have a significant impact on your future success. When you can’t trust the trustee I was sitting in my conference room in Scottsdale, Arizona. It was mid-afternoon. Across from me were three adult siblings. They were concerned that their brother, Fernando, had taken over as trustee of their mother’s trust and that he was stealing money from the trust. The siblings in my office were ultimately to receive equal shares from this trust, so their brother stealing money from it was ultimately reducing their eventual inheritance. Decades earlier, their parents had started a tortilla factory, and multiple Mexican restaurants. The parents had given the tortilla factory to two of the kids. Each of the other kids had received a restaurant business. However, the actual real estate and building where each restaurant was located was still owned by the trust. The father then passed away. Fast forward to shortly before this meeting. The mother was getting dementia and could no longer manage the restaurants. So, Fernando took over as trustee. Years earlier, it seemed most logical for Fernando to be in charge of managing the trust. Fernando had convinced his parents that he was loyal and careful with money. But pretty soon the other kids noticed that Fernando was able to remodel his house and go on cruise vacations, even though his personal business income hadn’t changed. Fernando then demanded that the three siblings in my office start paying rent for the buildings that their restaurants were located in. The three siblings refused, because they didn’t trust that he would spend the money wisely. The siblings in my office were also concerned about a safe full of gold coins. The safe was located in their mother’s house. Had Fernando gotten into that safe? Single vs. Separate Pot Trusts As you can see, having multiple children can greatly complicate the estate planning process, especially when there are multiple businesses and significant personal property -- such as gold coins --  involved. Dividing businesses is different than trying to divide a couple of investment accounts. Businesses are like living, breathing animals. A business can’t really be divided like an account can. It would be like trying to divide a baby or divide a cherished pet dog. You could have a custody arrangement for a baby or dog. But I’ve never heard of doing that for a business. Imagine that you get to manage the business on Mondays, Wednesday and Friday. I get to manage the business on Tuesdays, Thursdays and weekends. That would be nuts, right! What the parents tried to do was to create what are called separate pot trusts. Let me explain the difference between a single pot trust and a separate pot trust. Imagine you have an investment account. You write your trust to say that when you die, the investment account is to remain in place for the benefit of your kids. That would be a single pot trust. A main issue with this is this: What happens if one of your kids needs significant medical care? Or what if one of the kids has children who all need college, but one child has no children? Is it fair to spend more money on the one child needing more medical care or who has kids needing college money? I had a case years ago involving two kids who were the beneficiaries of a single pot trust. The one child had significant psychological trauma from earlier childhood abuse. The estimate was that the lifetime care for that child would cost the entire value of the trust. But that would mean that my client would not receive any benefits. We were able to go to court and have the court divide the trust into two separate “pots” or halves so that they each received equal benefit from the trust. Having separate pots is usually fairer. But separate pot trusts only work if each separate subtrust or pot is large enough to be separately managed. That usually means that each pot needs to have at least $500,000 in it. How to introduce the idea of a corporate trustee This brings me to the idea of bringing in a corporate trustee. If you have a client with multiple heirs, and that client wants to make sure that the money lasts as long as possible, having a corporate trustee is a great idea. Otherwise, family dynamics get to be too complicated. At least some of the kids will be aggressively eager to get their money, and that makes for conflict even if the document limits distributions. It would be much easier for a corporate trustee to implement “tough love” and only give distributions as provided in the trust documents. If there’s a business, however, you need to make sure the corporate trustee has someone with the skills to manage the business. You may be affiliated with a trust company. If so, great. If not, now may be a good time to find one that has a good reputation. In terms of how to actually make the referral to a trust company, a lot of clients are squeamish about having a strange trust company manage their family’s wealth. So, to introduce this idea, I suggest first talking to the attorney and CPA. Get them on board with the idea, and then ask your client to schedule a joint meeting with the client and other advisors to discuss the estate plan. The annual review is a good time to do this. (By the way, having annual reviews is a must. If you aren’t doing this, and if you aren’t talking to the estate attorney and CPA each year, you’re missing out on a great opportunity for collaboration and possibly referring business to each other.) EPISODE REVIEW So, let’s do a quick review of the insights you and I discovered in this episode. You learned why having a lot of heirs greatly complicates an estate plan, especially when one or more businesses are involved. You learned the difference between single pot and separate pot trusts. And finally, we talked about corporate trustees being a great solution for situations involving multiple children or heirs. This would be a great referral if you have an affiliated trust company. And speaking of reviews, please go to DynastyAdvisorPodcast.com/iTunes and type-in your biggest “take-away” or ‘aha!’ moment you experienced during this episode. You can do this now in the Reviews section and when you do it, iTunes will ask to rate this episode ... I hope I’ve earned 5-stars from you!  It’ll takes 3 minutes out of your day, but what you declare could provide you a lifetime of learning! I hope our paths cross again next week for the Dynasty Advisor Podcast, the show dedicated to helping you use Family Dynasty Planning to keep your biggest investment accounts even after your wealthy clients have passed away. Please do whatever it takes join me next week because our topic will be the danger of direct distributions. This greatly increase the chance that you’ll lose the investment account. So, it’s pretty relevant to you. The idea is that you can start to identify these dangerous situations and attempt to get them fixed ahead of time. (The incentive to the family is that by keeping the assets in trust longer, you are reducing the chance of the inheritance being squandered.) I encourage you to invite a friend or bring a study-buddy, because the next episode is pretty important. I can’t wait to connect with you then. In the meanwhile, all good wishes.

Being a Dynasty Advisor helps with more than just keeping AUM after a client dies. Behind the investment accounts are real people whose lives you’re affecting. In this episode, you’ll learn three key insights that are critical not only to doubling the lifetime value of your accounts and dramatically increasing the value of your practice – but to making a real difference in people’s lives. You’ll hear a story about someone whose parents cared too much, and in the process set their daughter up for a financial disaster. You’ll learn how an outdated tax consideration – and sloppy drafting -- has led to many trusts having a provision that no longer makes sense, and that can cause catastrophic results for the heirs. 62 years old and the trust runs out This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. You’ll hear a story about someone whose parents cared too much, and in the process set their daughter up for a financial disaster. Second, you’ll learn how an outdated tax consideration – and sloppy drafting -- has led to many trusts having a provision that no longer makes sense, and that can cause catastrophic results for the heirs. Finally, you’ll learn the importance of having flexibility in a trust document. This is something you can immediately call your clients and their estate attorneys about. Please read carefully. Because this episode could have a significant impact on your future success.   They should’ve seen this coming … It was a Tuesday afternoon. Sitting across from me at the granite conference table in my law office was an attractive, middle-aged lady with perfectly manicured fingernails, an expensive-looking dress, purple high heel shoes, and a necklace with a matching purple amethyst solitaire. She said she wanted to sue her trustee for mismanagement of the trust that her parents had set up decades earlier. At the time it was created, the trust has millions in it. But after years of being managed by a Las Vegas trustee who charged $1,000 per hour for his services, and giving out distributions freely to the daughter-beneficiary, the trust was now depleted down to $120,000. The lady in my office was 62 years old. According to the trustee, the trust would only last another two years at the current rate of distributions. She had never worked a day in her life, so she had limited social security benefits. And she had no marketable skills. She mentioned that she wanted to sell some of her jewelry in order to give me an advancement of legal fees. However, I was uncertain that I would be able to help her because the trustee hadn’t done anything obviously wrong. Her situation was mainly caused by lack of foresight on the part of her parents and the attorney who drafted her parents’ trust. As we continued to talk, I asked her how she planned to live once the trust ran out of money. She said she only planned to live another couple of years. She was serious. I asked if she was open to some advice. She agreed, and I suggested that she spend her remaining money to go to school and get trained to get a job. She quickly shook her head and said she needed to leave. She had her head set on suing the trustee. The person who was never mentioned to me was the financial advisor. I know there was a financial advisor, because if the lady’s parents had invested in gold coins or poker chips, that would have been something she would have mentioned. Essentially, the parents had set up an investment account like a bucket with a hole in it. The investment advisor’s responsibility was to hold this leaky bucket and keep adding to it, knowing full well that the bucket would become empty at some point. So … how did it happen that a lady … who was now 62 … was going to be running out of money just at the point that most people are considering retirement?   Beware the HEMS Standard One reason is the way the trust was drafted. You see, many trusts are drafted primarily for tax planning purposes. And from a tax standpoint, there is good reason to have what’s called an “ascertainable standard” included in the trust language. The most common ascertainable standard is “health, education, maintenance and support.” In other words, the trustee is either permitted or required to distribute trust principle to the beneficiary for the beneficiary’s “health, education, maintenance and support.” This “health, education, maintenance and support” is also called a HEMS standard. One estate tax planning situation that a HEMS standard is meant to avoid is when a beneficiary is also serving as trustee. Without some sort of “ascertainable standard,” there is a risk that the trust will be included in the beneficiary’s estate. Of course, now the estate tax applicable exclusion is over $11 million, so this was no longer relevant for this lady’s trust. A pattern that you’ll notice, if you review many trust documents, is that drafting attorneys over the years have been most concerned with avoiding estate taxes, and not with avoiding disasters such as the lady that sat across from me in my conference room. Now let’s talk about the benefit of having flexibility built into a trust document. For example, in the story I recounted, a Trust Protector with broad powers could have amended the trust and replaced the expensive trustee. A Trust Protector is a neutral third party who is neither the trustee nor the beneficiary. Often, it’s the drafting estate planning attorney. The benefit of this arrangement is that the drafting attorney is often the only person who has discussed intimate details concerning the clients’ final wishes. I will say that there has been significant litigation over the last 20 years on the role, responsibilities, and duties of a trust protector. It is important that the trust protector provisions be very well articulated to avoid litigation. In the story that I recounted, a Trust Protector could have fired the expensive Las Vegas trustee and hired a cheaper trustee … perhaps a trust company that merely charged 1.5% of assets under management. Also, the Trust Protector could have used “tough love” to say that the trust distributions needed to be cut back drastically to last the remainder of the daughter’s life. That would have forced the daughter to get a job years earlier. Also, a trust that requires distributions to beneficiaries at certain ages or outright rather than giving the trustee discretion lacks flexibility. The problem with this is that it assumes that life will always be perfect. A trust without flexibility assumes that each beneficiary will know how to manage and invest the inherited wealth, that the beneficiary doesn’t have a drug or alcohol problem at the time of the distribution, that the beneficiary isn’t going through a divorce or in bankruptcy when the distribution happens. And so on. Also, if you’re dealing with significant wealth – such as millions of dollars – monthly allowances don’t help promote the beneficiary to be productive. And without being productive, a person simply can’t have a healthy self-image. Flexibility can also take the form of granting broad discretion to the trustee. The magic combination is to have a check and balance: trustees with broad discretion, plus a Trust Protector to remove and replace the trustees if they misuse their discretion. So, now you can be on the lookout for the issue of lack of flexibility in a trust document and alert your clients when you see the issue. Or you can at least ask the drafting attorney to explain to you and your mutual clients what sort of flexibility is built into the trust document.   Get to know the Trust Protector And here’s one last lesson from the story. This is a bonus nugget here. You, as the financial advisor, need to be in communication with both the trustee and the Trust Protector. You all need to be working together. In the case of the 62-year-old that I described, I can guarantee you that there was no communication between the trustee and the financial advisor. Why? Because there was no incentive for the trustee to care. There was no way to remove him, so there was check and balance. Some Dynasty Trusts will go so far as to name you, the financial advisor, as a member of a Board of Advisors so you can all coordinate over the administration of the trust. Now that’s a true Family Dynasty Plan. And it doesn’t require hundreds of millions of dollars to implement that. It just takes some thought and care on the part of the drafting attorney.   EPISODE REVIEW So, let’s do a quick review of the insights you and I discovered in this episode. We heard the story of someone whose parents cared too much, and in the process set their daughter up for a financial catastrophe. The trust actually made it inevitable that the investment account would be gradually depleted over this lady’s lifetime. The problem was that it was depleted during her lifetime, and before she had any training or preparation for earning a living on her own, and without ensuring that she had some sort of retirement plan. Second, we learned how an outdated tax consideration – and sloppy drafting --

The main reason clients’ heirs leave a financial advisor is not having a relationship. In this episode, you’ll learn three key insights that are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. Lean in as Paul tells you a story about his personal experience of suddenly becoming an accredited investor, and who befriended him. He’ll also share who didn’t make any efforts to connect with him (namely any of the financial advisors he knew). Make these insights work for you so you can double the lifetime value of your large accounts, and attract more wealthy clients. This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. You’ll learn that people make emotional decisions and then justify those decisions rationally. You’ll learn that you shouldn’t just choose emotion or logic in dealing with your clients or potential clients. You need to use both. Finally, you’ll discover the importance of calling your clients and other contacts. Not just sending them an email newsletter. Please read carefully. Because this episode could have a significant impact on your future success. An investment conference with no advisors (aka, shooting fish in a barrel) It’s Friday late morning in early February 2010. I’m at the Atlantis Resort in the Bahamas. It’s a sprawling complex of buildings, which is kind of funny considering that the weather in the Bahamas is usually always beautiful, but at this resort you could spend the entire time never going outside. I’m attending the FreedomFest conference, which is a libertarian-oriented investor conference. Why was I at this event? Because one of the most recent books that my father bought was called Investing in One Lesson, by Mark Skousen. At the end of the book, Mr. Skousen invites readers to attend conferences that he put on. One is in Las Vegas, and the other is in the Bahamas. I later put together that Professor Skousen made his money selling investor newsletters and putting on these conferences. Anyway, my father was a very successful investor – having built his military retirement into $28 million over 40 years. He had recently died, and I wanted to honor him by learning what I could about what he did. I thought that attending this conference would be a good way of getting introduced to the investing world. Little did I know that investor conferences are basically glorified flea markets. Only instead of selling old antique junk, an investor conference sells junky investments to accredited investors. Anyway, as I’m walking through the exhibition booths on my way to the lecture hall, I pass a booth with beautiful bronze and silver sculptures. The company was owned by a good looking fellow about my age by the name of Mark. Also assisting him was a beautiful girl who I later learned was his wife. Mark was very enthusiastic and immediately struck a conversation with me. He treated me like I imagine Bill Clinton would treat someone he just met. He was the personification of ebullient – cheerful and full of energy. He took his time getting to know me over the coming days at the conference. I attended one of his breakout sessions where he explained how his company made money providing sculptures to charitable auctions such as schools. The company provided the sculpture to the charity, with a reserve. Then the deal was that the company would receive 50% of whatever the sculpture sold for at the charity. It sounded reasonable enough to a newbie investor like me. And, after all, Mark was so likeable. In the end, I invested millions with Mark. Only later did I discover that my millions had gone to building a new house for Mark complete with a helicopter pad. Now, when I was telling you this story, did you notice what I never mentioned? Did you hear me mention anything about my father’s stock broker? Or any of the financial advisors that I had gotten to know over the years as an experienced trusts and estates lawyer? Remember that I had been an estate lawyer since 2001, and it goes without saying that I had gotten to know at least a handful of financial advisors in the course of my legal practice. But I never reached out to any of these people … and none of them reached out to me during the years following my inheriting my father’s $28 million estate. What was that about? I should correct something. Various advisors continued to email me newsletters about changes in the tax law and market conditions. But none of them ever called or reached out to me personally. I can tell you that once I got on the list of accredited investors, there were lots of private equity companies that called me and sent me mailings. They did this relentlessly. But no legitimate financial advisor reached out … other than the bland emailed newsletters. Using Neuroscience: Emotion Plus Reason Here’s something you need to learn. Clients don’t invest rationally. Sure, they may tell you that they agree with what you tell them … your methods of selecting stocks, for example. But people are actually making an emotion-based decision to go with you, and then rationalizing it after the fact. This is what neuroscience says. Now I’m not saying to ONLY use an emotional appeal to your clients. The fact is that people use BOTH emotion and logic in making decisions. That includes decisions on whether to invest with you, whether to change to another advisor, or whether to just take the money and spend it. Remember two things about this. First, emotion always comes first. Second, people will justify an emotional decision based on a rationalization … and almost any rationalization will work. In one study that Harvard professor Ellen Langer conducted, researchers approached people in the act of using copying machines and asked if they could cut into the line and make photocopies. The experimental subjects were given different reasons for the request ranging from the sensible to the seemingly senseless, such as “because I’m in a rush” and “because I need to make copies.” It turned out that almost any reason worked, as long as it wasn’t completely fantastical … such as being chased by a pack of wild dogs. How do you apply this to how you promote your financial services company? Lead with a big idea that has an emotional appeal. You don’t need an endless and a constantly changing list of how your investment approach is superior. You need to just say that you focus on preparing your clients for retirement, or helping make sure their kids are taken care of. Something that has emotional appeal. Sure, every financial advisor probably does that. The difference is that you realize that investors are attracted to a big idea, and only after that do they then rationalize their decision. One RIA that I knew years ago promoted their understanding of Maslow’s hierarchy of needs, and that their clients were self-actualizers. The approach worked. They had a loyal following of clients who all saw themselves as “self-actualizers.” Then he would met with them each year to make sure their investments were meeting their goals. But that was the rationalizing part. The clients were already emotionally connected to his big idea of being “self-actualizers.” Another thing my story demonstrates is that you have no idea if I – your client or potential client – have suddenly received an inheritance or if I’m struggling to figure out how to invest or if I’m thinking of leaving you and trying another advisor, if you haven’t taken the time to reach out to me. Requesting an annual review is a good first step. But how about just reaching out a few other times during the year and asking how things are going? Mark, the guy who scammed me out of millions, still calls once or twice a year just to say “hi” and ask how it’s going. And you know what’s crazy? I actually like the guy because he shows genuine interest. I’ll never trust him with money again. But I’m happy to talk to him. There’s probably some sort of warped psychology at play here … something like defending your former abuser. But my point is that I actually feel closer to Mark than I do with most of the advisors that I have mutual clients with. He knows at this point that I’ll never invest with him again. But he still calls just to ask how I’m doing. And I feel a connection as a result. So, the one thing I want you to do this week is this: Schedule an hour a day for the next two weeks. Start calling ALL of your clients. If any of them have adult children, ask for their contact info and permission to call and introduce yourself to them. Tell your clients that research has shown that inheritances work much smoother and more successfully when the client’s children have some sort of relationship with the client’s advisor. If you want coaching on what to say, shoot me an email and we’ll schedule a short call. My email address is paul@magellanlawfirm.com. EPISODE REVIEW So, let’s do a quick review of the insights you and I discovered in this episode. This week, you learned that people make emotional decisions and then justify those decisions rationally. You also learne

90% of the time, when a client dies, the heirs take the money and run. And if the client’s wife inherits the assets, 70% of the time she finds another advisor. Why is that? In this episode, you’ll learn three key insights that are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. Paul will list the six reasons your clients’ heirs leave. He shares a story that illustrates three of those six reasons. Future episodes will address how to fix the six issues. For now, learn what the issues are, so you can address them quickly and keep assets under management. This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. You’ll discover the six reasons heirs leave the financial advisor that is managing their inherited investment accounts. You’ll learn who you are in competition with when it comes to heirs who suddenly become accredited investors. Finally, you’ll hear one powerful thing that you can do to stand out among all the other advisors who are doing nothing to combat heirs taking their money and running. Wait to the end to hear that because it’s really important. Please read carefully. Because this episode could have a significant impact on your future success.   Trusting the wrong people It’s evening. I’m in a 4 foot by 4 foot elevator at the Royal Continental Hotel on the Bay of Naples in Italy – probably the nicest hotel in that city. With me is my Chief Financial Officer. We were talking about how I could make a go of a business that I found myself owning in Italy. Why did I own a business in Italy? Because the previous year I had been lured into “investing” millions in an art business. I eventually realized that my “investment” didn’t actually go to the business, but instead was used as the down payment towards the con artist’s new house outside Portland, Oregon complete with a helicopter pad. Soon after that, I settled with him to get what at the time I thought was the only thing of value that he had – a promising historic art foundry in Italy. Yes, I fell for the Sunk Cost Fallacy and threw good money after bad. In the elevator, I told my CFO that I thought I had invested in a Ponzi scheme. He grimaced and said we just needed to move forward. Of course, what I didn’t realize at the time was that HE was self-interested. He was actually most concerned about continuing to receive his $4,000/month salary rather than provide me with sound advice. If you remember from the previous episode, I had received a large inheritance from my father in 2009. In the end, I dropped millions more into the Italian business until it ultimately went bankrupt many years later. Why am I telling you this story? Because when this all happened to me, I was an experienced trusts and estates lawyer. If I can make this mistake, then anyone can make the mistake. It doesn’t make the person stupid (or at least that’s what I prefer to think!). It just makes the person human. Also, there is around a 90% chance your client’s heirs will take their inherited wealth and run after a wealthy client passes away – UNLESS you take proactive measures. There are six reasons for this, according to an InvestmentNews survey of advisors. My own story illustrates three of those six reasons your client’s heirs probably won’t stay with you. Reason #1: Lack of a Relationship with the Advisor. This accounts for 30% of the times your client’s heirs might leave you after your client dies. This is according to an InvestmentNews survey of advisers. When my own father died, I knew he used TD Ameritrade. But I had no idea who the broker was. I saw a scribbled name and phone number of his broker at Ameritrade, but I never followed up. And the broker never attempted to contact me. Reason #2: Children Spend the Assets Too Quickly. This accounts for 20% of the times your client’s heirs might leave you after your client dies. There is a saying, “Shirtsleeves to shirtsleeves in three generations.” This refers to the tendency of heirs to spend their inheritance. The money you have worked diligently to help your clients accumulate is unlikely to be of much benefit to their grandchildren. That is just a statistical reality. It takes approximately 5 years for someone to return to a “new normal” after inheriting a windfall. That’s also a statistical reality. But it doesn’t need to be that way. Reason #3: Inheritance is Split Among Too Many Parties. This accounts for 18% of the times your client’s heirs would leave you after your wealthy client dies. You have a client with $5 million under management. But when the client dies, the account is transferred to 5 heirs. All of a sudden, what was manageable (and profitable) turns into a mess. It would have been difficult to establish a new relationship with one heir. But 5 heirs? That’s just impractical. The result: The heirs quickly take their money and run. Reason #4: Clients are Unwilling to Include Adult Children in Meetings About Wealth. 15% of the times your clients’ heirs will leave you is because of this. This is a very typical conundrum. Money is still one of the biggest taboos, especially in the context of a family. It remains the common pattern for the steward of the family to be secretive about post-death matters (even to the extent of not telling next of kin the location of a Will or Trust, who is to be in charge, or how the wealth is to be managed). This can lead to chaotic scenes of competing family members taking heirlooms without permission and even destroying estate documents (to prevent rival siblings from assuming control). Reason #5: Children show no interest in having the same adviser manage their assets. This is 12% of the client attrition after a client dies. This sounds like a pretty daunting issue, right? Not everyone likes each other. We’re all different, right? But the reality is that I have found that if you address the other issues, you can practically eliminate this issue.   Finally, reason #6: Inherited assets are too small to manage profitably. This is 5% of the time. Maybe your client gave 50% to his charity, and the kids and surviving spouse all have to share 50%. Or maybe there was litigation and much of the inheritance was eaten by legal fees. Whatever happened, if the remaining funds are too small to manage profitably, you may need to make a judgment call and let the account go. The good news, however, is that this too can often be prevented by addressing the first four issues. We’ll be covering how to maintain these accounts in future podcasts. For now, let me just say on a personal note that I really wish someone in my circle of influence had been aware of these issues before my father passed away or while I was struggling to find my equilibrium after inheriting my father’s wealth. My own experience was this. I would call various financial advisors to help me transfer my father’s stocks to my own account. I had the complete ability to liquidate the accounts and make my poor decisions. I was an “accredited investor,” I was open game for a string of shysters who befriended me. At no point did any of the various advisors at UBS, JPMorgan Chase or Ameritrade ever raise the issue of Sudden Wealth Syndrome or how someone coming into a sudden inheritance isn’t thinking clearly. At no point did any of these advisors suggest any method of dealing with my emotions or mention the risk that I was in … the risk of losing substantially all of the inheritance due to my emotional state. They just added me to their monthly email newsletter. Thanks a lot!! (Not!) I know that you’re in a regulated industry. So am I (as a lawyer). But there is no law against you calling and asking how I’m doing. There’s no law against talking to me about something other than how the markets are doing! Remember that I mentioned not having a relationship with the parents’ advisor was the biggest reason for loss of accounts. Well, let me put this in perspective for you. You are in competition with some really charismatic people who are more aggressive at going after wealthy people than you are. This is personal to me. I want to prepare you to be more charming and more convincing than the low life con artists that you’re competing against. Don’t worry. I’m not going to change your personality. But I’m going to teach you some tactics that will come as a breath of fresh air to wealthy people who don’t know who to trust. Keep listening to future podcasts for these tidbits. Finally, let me mention the one thing you should do to prepare for a client eventually dying and dealing with heirs. I say this knowing that some of you won’t continue listening to future episodes. And the main reason I’m doing this podcast is to change the way financial advisors interact with heirs. The single most important thing you should do when a client dies is to implement this system: Arrange to meet with the heir either in person or on Skype or Zoom. Have a script for the conversation that covers the tendency for over 70% of heirs to lose the money either through spending it or making poor investment decisi

Great losses are great lessons. As Richard Branson said, “You don't learn to walk by following rules. You learn by doing, and by falling over.” In this episode, you’ll learn three key insights that are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. Paul shares his personal story about how he inherited his father’s $28 million estate, and then proceeded to trust the wrong people and experience the result of not having been prepared as an heir. You’ll learn why most transfers to the next generation are not successful. This is also one of the top reasons for your clients’ heirs leaving you when your client passes away. This is the show devoted to financial advisors, fee-based investment advisors, and wealth managers who want to increase the value of their practice by attracting more premium clients and reducing client attrition. Now if this sounds like you, all you need to do is lean forward and listen carefully. Family Dynasty Planning is central to our discussions, and you and I will also explore other fascinating and important topics such as attracting wealthy clients, dealing with increasing competition, continuity planning and succession planning, growing and building your business, understanding the true worth of your business, and leveraging technology, just to name a few. In this episode, you’ll learn three key insights that I believe are critical to doubling the lifetime value of your accounts and dramatically increasing the value of your practice. You’ll discover the importance of your clients’ future heirs being prepared to inherit your clients’ investments, and having additional safeguards in place such as a trust that prevents outright, lump sum distributions. You’ll also learn the single greatest reason that most transfers to the next generation are not successful. This is also one of the top reasons for your clients’ heirs leaving you when your client passes away. Finally, you’ll learn the one thing to suggest to someone who recently came into a financial windfall. Please read this carefully because this could have a significant impact on your future success. Paul will begin with his own personal story and why it’s motivated him to start this podcast series. Rags to riches to a new mission It’s Tuesday, November 10, 2009. I’m in my father’s house in Vancouver, Washington. I’m looking at his wooden desk with a desktop computer and inkjet printer on it. I notice a 2008 federal tax return on top of the printer. The first page of the return indicates a $1.5 million passive income. Over the coming weeks I realize that I am inheriting over a $28 million estate. Now imagine that five years later, this amount has been depleted down to $500,000. When this all happened, I was an experienced estate and probate attorney. I had graduated from a top-tier law school and mentored with a nationally known estate planning and asset protection attorney. I had even written about the dangers of sudden wealth, and how to prevent it being lost. How embarrassing, right?!? But when it actually happened to me, I was blind-sided. I had no idea how a person’s psychology changes as a result of a financial windfall. Research shows that it takes an average of 5 years to adjust to a “new normal” after suddenly receiving a large amount of money. But it takes a lot less time to lose the windfall. I never met my real dad until he was in a nursing home and I was 42. How that situation was created is a story for another time. For now, let me just tell about when I actually met my father for the first time. It was a rainy Autumn day in Vancouver, Washington. As I walked into his room at the nursing home, he was alone. He was a Vietnam vet. He and I made a plan that day that he would come meet his grandchildren in Scottsdale for the first time when he got better. He never did. Six weeks later he went to hospice. At that point, I knew he hadn’t been to his house for several months, and I wanted to see what condition things were in. As I was going through his house, I stumbled upon his tax return. Apparently, he was a great investor and I had no idea. Then he died. But here’s what happened. Through a lack of planning, No tax planning No estate planning No plan for transferring his knowledge or vision for his family’s future … within five years, what I inherited had dwindled down to $500,000. Now I’m on a mission to make sure what happened to my family doesn’t happen to other families. I’m reaching out to you as a financial advisor because you probably talk to your clients more regularly than I do as an estate attorney. So, you’re more likely to be able to spot an issue and help prevent it. Shirtsleeves to shirtsleeves You see, traditional estate and financial planning doesn’t prepare heirs. There is a saying, "Shirtsleeves to shirtsleeves in 3 generations." This refers to the fact that around 70% of wealth is lost after it’s transferred to the second generation, and 90% or more is lost by the grandchildren. There are two general reasons for this. First is simply the subsequent generation not being prepared. The other reason is lack of trust and communication in your clients’ family. If you’re an investment advisor or wealth manager, this is relevant to you because over 90% of children leave their parents’ advisor after inheriting their parents’ wealth. I’m actually encouraging you to be self-interested, because by solving this problem for yourselves, you are also helping solve the shirtsleeves to shirtsleeves pattern for families. There is no Quick Fix for preparing the heirs. Just like there is no Quick Fix for training to run a marathon or learning a musical instrument. In all of these cases, it takes time and dedication to practicing the right things. If you want to prepare heirs to inherit wealth and not become druggies or deadbeats, you need a certain context. For starters, you need to prevent them from having complete control for a period of time. It normally takes as much as 5 years for someone coming into a financial windfall to acclimate to the situation. During that time, they are (for lack of a better word) “unstable” emotionally and psychologically. We’ll cover how to address this in future podcasts. But one solution is having the assets in a trust that does not provide for an outright distribution. The other reason that wealth transfers don’t work is lack of communication and trust in the family. This is the single greatest reason for transfers to the next generation not being successful. This is also one of the top reasons for your clients’ heirs leaving you when your client passes away. In future podcasts, we’ll discuss how YOU can be a family champion and advocate for better communication and trust within your client families. Ok. I know that doesn’t exactly sound like what you signed up for when you got into investments and giving financial advice. But think of the Department of Homeland Security. Homeland Security’s slogan is “If you see something, say something.” By this, they mean that if you as a civilian see an abandoned backpack or an angry passenger in an airport, you should report it, even though that’s not officially your job. Similarly, if you have a client with adult children, you should ask if they have talked to their kids about what the family’s wealth means to them and their hopes and aspirations for how that wealth gets used in the future. Yes, I know this is a huge taboo. That’s why it’s important. Do you care about your clients? Well, your High Net Worth clients’ wealth WILL get lost if they don’t begin open communication with their kids about how the wealth will be used in the future. And don’t worry. I’ll provide more guidance about how to address this topic in future podcasts. So, you can take a breather for now. Now let me mention so you can implement immediately. If you know of someone who recently came into a large financial windfall, you can do the following: Call and ask how things are going. Just listen. (Research active listening if you aren’t familiar with this.) Mention that a lot of times people who come into sudden financial windfalls lose the money due to making mistakes and trusting the wrong people. Ask if they are open to a suggestion. Then suggest that they take some portion and put it into an irrevocable trust to be safeguarded for 5 years. If you’re affiliated with a trust company, that company can serve as trustee. They shouldn’t have a problem with hedging their bets and putting 10% or 20% in a trust that will be re-distributed to them in 5 years. You can even say you’ll bet them that the investment returns in the trust will beat the returns that they get over those 5 years. (That shouldn’t be hard, since chances are they will blow the money they have control of. Meanwhile, you’ll be getting a conservative return … and you won’t lose the money that you manage.) Say that if you lose, you’ll buy him or her a dinner. No lose situation, right? Ask if they would be willing to agree to not make any major financial decisions until their emotions have stabilized and they have reached a point of feeling normal again. You can explain that people tend to make bad financial decisions when they are overly emotional. Use active listening. We’ll cover this in future podcasts. And if you can’t remember these give steps … just remember to call periodically. People who come into a sudden windfall are usually lonely (even though they probably have no lack of people around them) and they’re looking for someone who just shows genuine care. Don’t sell. Just listen and care. EPISODE REVIEW So, let’s do a quick review of the insights you and I discovered in this episode. We covered the importance of your clients’ future heirs being prepared to inherit your clients’ investments, and having additi