Produced in partnership with Netwealth.
Engaging the next generation early is crucial for advisers of high-net-worth (HNW) clients as it not only help older clients to maximise wealth and prepares their children to manage assets responsibly, but also ensures longer-term profitability for the advice practice, leading practitioners told the Netwealth Accelerate Summit.
US statistics suggest that only 14 per cent of advisers retain the next generation of current clients on their book, said founding partner of Viola Wealth Charlie Viola, and he is willing to bet that Australia is somewhat the same.
“If we think about our business today, we manage 2.9 billion of assets and the average age of our clients is 55 or 56… if 85 per cent of that leaves whenever the clients die, which is what they find in the US, then your business isn’t going to be as valuable as what you think it is,” he told the summit, hosted in Melbourne earlier this month.
“So [engaging with the next generation] actually ensures that your business continues to be valuable into the future, as well as doing a really good job for the [older] clients obviously – giving the patriarchs the peace of mind that they know the money is actually going to be used for things other than Sportsbet and perfume.”
Eikon Financial principal adviser and director Katerina Nicolakopoulos said the engagement leads naturally into three big areas of HNW advice – early estate transfers, younger generation education and voluntarily invoking the enduring power of attorney (EPA).
The latter topic could be very sensitive but is also where advisers often form the strongest relationship with their clients, Nicolakopoulos said. Engaging with family of the clients early could solve much head and heartache later if an older client does lose their mental capacity to make decisions, as securing a doctor’s assessment can be challenging.
“It takes quite a few conversations to get clients to that point [to invoke the EPA], and it’s usually when clients have started to recognise those early signs of perhaps their memory loss or their inability to speak clearly,” Nicolakopoulos said.
“For one of our families, this has occurred and when they did hand over the reins, it actually brought the kids close together.
“Because we’ve been working together – and us as almost mediators in the room – we’ve been able to bring the kids together, and the parents just couldn’t be happier.”
The most important thing for advisers to recognise is that HNW is often not a transactional service, Nicolakopoulos said, as these clients built their wealth through “extraordinarily hard work” and “wise investment decisions”, who wish to leave their family taken care of and a legacy behind themselves.
“Of the wealth that’s built by one generation, 70 per cent of that is lost in the second and 90 per cent is lost in the third generation,” she said. “It’s paramount to make sure that we protect those nest eggs for the clients.”
Another area where younger generations of the family may diverge from their parents or grandparents are around responsible investments or philanthropic donations, said Farren Williams, adviser and partner at Koda Capital.
The clients who are passionate about the charity route are often themselves active members in philanthropic organisations, and can choose to donate capital via a structured giving vehicle or a sub fund in a community foundation or direct donations.
“As you get the next generation involved in those discussions, sometimes they will have different values, different areas of impact that they’re looking to pursue,” Williams said.
“Sometimes they’ll have a different view in terms of the time frame to get the money out the door.
“For some of those families we work with, we say look, that’s mum and dad’s money. We want them to have the fun giving now, and we want them to be pursuing what they’re really passionate about. So that might lead to an acceleration of that money going out to the community.”
HNW advice is a famously high-touch line of work, but Viola said what all clients need are ultimately the same – protect the capital, generate revenue, and grow it over time.
“The only way that you do that is by getting on with it and making good investment decisions,” he said.
“The better that you can display to the clients that you’ve worked really hard around your manager selection, due diligence, and the asset quality that you’re putting people’s money into, the more they’re going to feel comfortable with having you as their trusted adviser.
“Because ultimately, whether someone’s got five or 15 or 50 [years to live], it’s still all the money in the world to them, and they all just want exactly the same thing… what they use it for is different.”
