Imagine inheriting a fortune, only to ditch the financial advisor your parents trusted for years. Sounds harsh, right? Well, it's happening more often than you think, and the reasons why might surprise you. In fact, a recent study reveals that a staggering number of heirs choose not to stick with their parents' wealth advisors. But here's where it gets controversial: are they making a mistake, or is it a smart move based on changing times and personal preferences?
According to Cerulli Associates, over the next quarter-century, a monumental $120 trillion is projected to transfer to the next generation. That's an astronomical amount of wealth changing hands! And within that massive transfer, a significant shift is occurring in the advisor-client relationship.
Cerulli's research, which surveyed investors with at least $250,000 in assets, found that only 27% of future beneficiaries (primarily widows and children) intend to keep their benefactor's financial advisor. Even more strikingly, that number drops to a mere 20% among those who have already inherited their wealth. Think about that for a moment: only one in five inheritors choose to stay with the advisor their parents relied on. What's going on here?
Now, you might assume these heirs are rushing off to invest in the latest meme stocks or diving headfirst into the world of self-directed investing apps. While some undoubtedly are, the reality is far more nuanced. When asked why they opted for a different path, half of the surveyed heirs revealed they already had their own advisor. And this is the part most people miss... It's not necessarily about dissatisfaction with the existing advisor, but rather a pre-existing relationship and comfort level. The second most common reason, cited by 28%, was simply not having a relationship with their benefactor's advisor in the first place. Only a small fraction, 14%, expressed a complete aversion to working with a financial advisor, and 10% felt the existing advisor didn't align with their specific investment goals. Importantly, respondents could select multiple reasons, highlighting the complexity of the decision.
John McKenna, a research analyst at Cerulli, offers a crucial insight: "Keep in mind, if the parents die in their 70s or 80s, the inheritor is between 40 and 60. In most of these cases, they have matured into wealth management clients. They have relationships, and they're just going to be adding incrementally to their existing relationships rather than starting a new one with a legacy advisor." In other words, many inheritors are already established adults with their own financial lives and advisors.
But what about the parents, the benefactors passing on this massive wealth? Interestingly, Cerulli found that they are largely ambivalent about whether their heirs stick with their chosen advisors. While just over a quarter expressed a preference for their heirs to continue the relationship, more than half were either unsure or felt it was entirely up to the beneficiaries. A surprising 7% actually didn't want their heirs to use their advisor, primarily because there wasn't an existing relationship between the advisor and the next generation.
The underlying issue, according to Scott Smith, senior director of advice relationships at Cerulli, boils down to communication – or rather, the lack thereof. Smith argues that clients often shy away from discussing their estate plans with their families. Even among investors with over $5 million in assets, a staggering 20% admitted they intended for their heirs to learn about their wealth after their death. And here's a potentially controversial point: that number is likely even higher in reality. Why? Because 34% of high-net-worth heirs reported being informed about these details after their benefactor passed away.
"Benefactors believe that they will talk to their next generation about this stuff before they die," Smith explains. "But when we ask the next generation, these conversations didn't happen." This disconnect creates a significant challenge for advisors hoping to retain those assets. Without the opportunity to build rapport and understand the heirs' financial goals, they're at a distinct disadvantage.
Smith emphasizes that it's the advisor's responsibility to encourage clients to initiate these uncomfortable conversations. "Reinforce it with the primary contact that it's important for the survivor to get involved early on so they have their feet securely on the ground and they aren't panicking as soon as it happens," he advises. "It's not just that we're trying to retain the assets. We're trying to make it easier for your survivor when you pass." The goal isn't solely about preserving the advisor's book of business; it's about ensuring a smooth and informed transition for the next generation.
So, what do you think? Is it a sign of financial independence and savvy decision-making for heirs to choose their own advisors, or is it a risk to abandon a potentially valuable relationship built by their parents? And more importantly, whose responsibility is it to bridge the communication gap between generations when it comes to wealth transfer? Share your thoughts in the comments below!
