23 minutes | May 15, 2019

6 Reasons Clients' Heirs Leave Advisors

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
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