Does a Client Have a Life After Death?

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Advisors Who Manage Family Money Have an 8 out of 10 Chance of Being Fired by Heirs After Their Client Dies

Marketing buffs Russ Alan Prince and Hannah Shaw Grove offer tips to protect your relationship and reduce your chances of losing business.

Marketing strategists Russ Alan Prince and Hannah Shaw Grove recently released a report prepared for Rothstein Kass, a noted CPA firm, that reveals startling statistics about the rate heirs fire their parent’s advisors after they pass away. The report is based on surveys completed by the team over the last four years.

Results indicate that investment advisors are twice as likely to be fired by their heirs than a trust company hosting the vehicle funding their inheritance.

This data provides compelling evidence that advisors, wealth managers and others who manage client money need to be involved at an earlier stage in their client’s wealth transfer planning process. This should include their client’s trust preparation and ongoing administrative process. The data suggests that by either developing a relationship with a trustee provider, or with a directed trust arrangement, and/or starting their own advisor-owned trust company, an advisor can be more certain to hold onto their client’s accounts after the heirs parents pass away.

The simplest, but not necessarily the best way, to lock-in trust relationships is with a directed trust. A directed trust permits an advisor to have full discretion to choose investments that best meet the trust’s objectives including stocks, bonds, mutual funds and other marketable securities. Trust providers include Wilmington, Reliance, Northern, Sterling, Fiserv and other trust companies.

Directed trust arrangements have become better known. In 2007, The Wall Street Journal published an article – How Many Trustees Do You Need? The article highlighted the popular arrangements that more families are using; such as teams of multiple trustees and advisers, each with very specific roles and responsibilities.

The best way to maintain the greatest control is by owning a trust company. This integrated solution gives the advisor the greatest involvement in both trust creation and ongoing administrative process. Over the past few years, advisor-owned trust companies also have increased in popularity. With an advisor-owned trust company an advisor faces much lower odds that the heirs will flee once parents pass away. Advisor owned-trust company arrangements were featured last month in an Investment News article – More advisory firms expected to start trust companies.

The Investment News article pointed out that South Dakota has become a popular state for advisor-owned trust enterprises. Garrison Institutional, a consulting firm that helps advisors start trust companies published a complimentary special report on how the process works – Launching a South Dakota Trust Company.

FATAL ATTRACTIONS

Advisors were not the only providers to get the boot when parents pass away. The most likely providers to be fired are the parent’s business attorney, CPA and private banker. Therefore, developing strong relationships with these professionals could prove fatal as heirs clean house and appoint new players.

Prince performed a similar study early in 2003 for Merrill Lynch Investment Managers – How Inheritors Find Their Advisor. He surveyed 334 inheritors who had inherited at least $1 million in the previous two years and the results corroborated the findings of the recent Rothstein Kass survey.

One theme in particular seemed apparent in both studies. In the earlier 2003 study, 96 percent of clients only wanted to work with wealth managers that had experience handling wealthy clients that had access to otherwise unavailable options such as sub-managers, hedge funds and private equity deals often reserved for the ultra-high net worth investors.

Given these responses, Prince and Grove suggest inheritors need to invest their money in different ways than their parents.

Based on the data of the recent Rothstein Kass survey, the 2003 Prince survey, and other advisors I work with, there are seven solid strategies to follow in building and protecting client relationships:

1.) Most important, develop relationships with trust company’s administrative trustees and other trust providers so that advisors are a part of the trust relationship.

2.) Be sure that the advisor is named as the investment advisor in any successor of transfer instruments such as a revocable living trust or any other trust that provides for client succession planning.

3.) Beyond meeting the parents meet the kids. Involve yourself early on in the family education process. Provide investor education and include the prospective heirs in any major investment decisions.

4.) Avoid running into clashes between parent and heir agreements as the client may feel that the advisor is pandering to the heir and that will disregard the advice and the account objectives of the parents.

5.) Be empathetic. The emotional toll of having an heir become wealthy immediately means a reassembly of their priorities, life’s goals and investment objectives.

6.) Distance yourself from the providers that are most likely to be ditched after death. These include the client’s business attorney, CPA and private banker.

7.) Add value to your service. The advisor and trust provider should offer wealth transfer planning and asset protection to create motivation for the heirs to stay put.

In summary, as your client’s wealth begins to grow and multi-generational planning concerns become more apparent, it is important for the advisor not to take the ostrich approach and hide from being involved with the client and heirs in strategic meetings.

Remember, the trust provider and trust company are the least likely to go when your client dies. Develop a strong bond and meaningful relationship with them and you will find yourself less likely to be eliminated when the new regime takes over.