Doug Orton – Keeping Family Wealth Video

Hi, I’m Doug Orton, senior business development strategist at MFS, and I want to talk to you about the biggest threat and the biggest opportunity to your practice, which is the adult children of your best clients. Because one of the things that we’ve found as we talk to financial advisors is that if they lose a high-quality client relationship, it is generally because the client has passed away and they don’t have an existing relationship with the heirs. So that’s what we’re going to talk about today.

But before we jump into the strategies that you can use, let’s level-set a little bit with some statistics. Each year at MFS, we do a survey of about a thousand investors, and we’ve been asking them about the family wealth transfer, and we’ve gotten some very interesting answers. One is that 36% of the parents’ generation feel strongly that they want their children to use their financial advisor, and that sounds good, but it means that almost two thirds of the parents don’t really care if their kids use their financial advisor. The second thing we asked about is whether the multigenerational relationship already exists. And when we ask the child generation — and I should say, when I say child generation, don’t picture younger investors. Picture somebody like me. Somebody in their early 50s is really who we’re talking about for the heir generation. And in that generation, 44% said that their parents used their financial advisor. And when we asked the parents’ generation, 51% of the parents said that their kids used their financial advisor.

So it might seem like this is a solved problem for a wide variety of the families that we serve, but there is one more statistic to look at, and that is only 30% of the heirs say they’ll keep the assets where they are, meaning leaving it with their parents’ financial advisor. And I don’t know about you, but I have a tough time making all those statistics match. If 44% of the heir generation is saying that their parents use their financial advisor, why would only 30% say they’re going to leave the money with the parent’s financial advisor? And I think what we see is that people have multiple financial advisors. And what I’m convinced is happening is each generation might have some of their money with their parents or their kids’ financial advisor but they have a primary financial advisor and the primary financial advisor is who’s going to receive the bulk of the assets during the wealth transfer.

So there’s a lot of numbers on this slide. There’s two that I want to point out. One is 47% of the heirs say they’re going to move most or all of the money to another financial advisor, and 30%, as we already discussed, are going to leave it where it is. And I don’t want to make this a bad news slide, that half the assets are going to leave. I actually want to combine the 47 and the 30 because that’s 77%. Whether I’m going to move the assets to another financial advisor or leave it where it is really two ways of saying I’m going to keep these assets invested. And it might be surprising to say that 77% of heirs are going to keep the money invested because that doesn’t match what we see anecdotally with friends or family members or the generic beneficiary that we deal with in our practice.

But not everybody gets into our survey. To get into the MFS survey, you need to have a financial advisor, you need to own some mutual funds and you have to have an income above $50,000 a year. And that’s not an incredibly high bar to overcome, but what we’re getting at is if the heir already owns their own investments and values professional advice, we think that that makes it more likely that they keep the money invested. And so it leads us to the first step in the three-step process to convert the heirs that can benefit from your advice.

So what are we going to do? Step one, how do we identify the “Alpha child” of the family? And the Alpha child is the one that I think is the real opportunity and the real threat to your practice. And all I mean by the Alpha is there’s usually one adult child that the parents rely on for support and advice. It’s the heir that holds the health care proxy, that maybe is their power of attorney, the executrix or executor of the estate. And in most families, that is an heir that is either financially successful or at the very least financially stable.

When I sit down to decide which of my children has the authority to unplug my life support, I’m generally not going to pick the kid that’s living in my basement just waiting for the inheritance. If I did, I could probably skip my do not resuscitate order, but it’s not what we do, and that’s what I mean by that heir being the biggest opportunity. It is very likely that that heir looks like me, meaning somebody in their early 50s, and they already have money, they already have a financial advisor, they are a perfect prospect.

But what do I mean by they’re the biggest threat? What I’m hearing from more and more financial advisors is that at some point, as the parents are asking that Alpha for advice or a second opinion, at some point that Alpha says, “Mom, dad, this would be so much easier if you just used my financial advisor,” because it would be easier for the parents, easier for the Alpha. And so, we’re seeing this shift not happen at death but sometimes a good seven, eight, nine years before death.

So how do we protect ourselves from this risk and help the families that we serve with an effective wealth transfer? Step number one: Let’s identify the Alpha. And I think the easiest way to do that is to just ask the client, “If I have concerns about your health or your mental capacity, which of your children do you want me to call?” And for the younger advisors in the audience, that might seem a little abrupt or direct, but for people my age, we’ve generally been through this with a friend or a family member. We understand how difficult this is. We understand that we need to have a plan for diminished capacity. So that’s step number one. Let’s identify the Alpha.

Step number two: Get the parents’ permission to contact the Alpha now, so once they give you a name, you can say something like, “With other clients who have been through this, it’s been a lot easier for their kids if their kids already know me. So do you mind if I call them and introduce myself? I obviously won’t go through any details of your finances. I just want to let them know who I am and what I do for you.” And when we look at it from the client’s perspective, this is clearly beneficial for the client and for the client’s kids. If the first time that Alpha’s talking to their parents’ financial advisor is during a medical emergency or a capacity crisis, that is not a comfortable place to start.

And if you’re like many of the advisors I talked to, you might be doing these first two steps, and I think that’s great. That will absolutely help the families that you serve, but it will not solve your retention problem unless we go to step three, which is get the Alpha to opt into a drip marketing campaign, which is obviously not the language you’re going to use. What I want you to picture is you’ve called the Alpha, you’ve talked to them for a little bit, why you’re calling, who you are. You’ve built a little bit of rapport. I think you want to say something like, “I want you to have a good idea of what I do for your parents. Occasionally, when I’m sending them something, do you mind if I copy you on it? I won’t spam you with a ton of stuff. I’ll send you something maybe once a month.”

Now, a couple of things about that question. One, clearly you’re not going to send the heirs anything that would break confidentiality or anything like that. What we’re suggesting you do is add the heirs to your existing client contact program, the things that you send out to all of your clients and prospects. And I’ll go through a couple of ideas on what I think fits in that space, but that’s what we’re picturing. Secondly, be careful of the language. I’m a huge proponent of wordsmithing. You can change that to fit your personality, but there’s one piece of it that we want to be careful of. If you ask the Alpha, “Occasionally, when I’m sending your parents something, do you want me to copy you on it?” the majority are going to say, “No, I’m all set.” And that might sound like what I said, but what I said was, “Do you mind if I copy you on it?” That is a very different ask. And how you ask clients questions or prospects questions will influence the answer that they give you.

So that’s the three-step process. You’re going to identify the Alpha, you’re going to get the parents’ permission to contact the Alpha and you’re going to get the Alpha into your client contact program.

The next question is, why? Why is the client contact program the right solution? Part of it is, why don’t people use their parents’ advisor? The number one answer we found was, “I didn’t use my parents’ financial advisor because I used my financial advisor.” And that makes perfect sense once you hear it. So we’re not really trying to get the Alpha to hire you as their financial advisor. That’s actually the second step. We want them to fire their current financial advisor and then hire you.

Why do people fire their financial advisor? Every survey I’ve ever seen of people who have fired their financial advisor, the most common answer is lack of enough meaningful contact. So if I fire my advisor due to a lack of contact, you’re out contacting my current advisor. That gives them not only an illustration of why you’re a better financial advisor but a path of least resistance to follow. They finally get sick of their advisor. You happen to send them something. They give you a call. That’s all we’re trying to do. The secret behind drip marketing is creating your own luck.

So what are the things that you might want to send to your clients’ prospects and your clients’ heirs? And the one piece from MFS that is more popular than anything else we have is the “What Keeps You Up at Night?” checklist. What this checklist does is ask them that important question, what keeps you up at night? You wake up at 2:00 AM, you can’t get back to sleep. What is it that you’re worried about? And there’s 27 different choices for them to pick, things like how do I choose a nursing home for a loved one? How do I understand the complexities of Medicare? Do I want to retire in another state? All these things that they might not think to ask you about, but you can help them with it.

And if you’re a little unsure about the next step, if you go on to mfs.com under sales tools, you’ll see a page that looks exactly like the worksheet. If you click the same box that the client checked, you’ll get a two to four page PDF on that topic. So if they’re worried about how to choose a nursing home for a loved one, you’ll get the nursing home checklist, a list of questions they might want to ask a nursing home or assisted living facility that will help them make a more educated decision. And what I love about this, using it with the heirs is whatever they mark off, what they’re telling you is, I have a need that my current financial advisor has not met. They are telling you exactly how to differentiate yourself from their current advisor.

The next thing I want to talk to you about is your homework assignment. What you see here is the family financial map. We have one that we can share with you. You can fill it out with a client. What I’m going to recommend is you go through this exercise with a client with a blank sheet of paper. And the idea is you put the client or the client couple in the center of the page and you start asking questions about the family, their kids, their kids’ significant other, their siblings, organizations that they feel are important to them. And if their parents are still alive, start asking about their parents as well.

And there’s a couple of things that this’ll help you with. One, most of us are visual people. If you’re asking me what I’m trying to accomplish with my estate plan, what is it that I want to cause to happen, what is it that I want to prevent from happening, if you ask me that in a vacuum, I’m going to have a lot of difficulty coming up with coherent answers. But if I’m looking at a diagram of the family, now it is much easier for the financial advisor to ask probing questions and it’s much easier for the client to visualize what we’re trying to do. Asking about each child, what’s their skill level handling money? Do they make good investment decisions? All those sorts of things will help you build a better estate plan. Particularly if you ask questions about how the kids get along with each other, you can start to head off those communication breakdowns that can destroy, not a family’s wealth, but the family’s relationship with each other. The second thing this can do for you is it’s a good diagnostic.

I want you to think of your top 20 households, however you rate that. What are the 20 households that are crucially important to your practice? And I want you to pick out, let’s say household three, seven and maybe 15. Can you build this financial map without looking at your CRM? If you can, great. You are well on your way to being the family financial advisor. If you can’t, you aren’t. That’s not a judgment, it’s just a diagnostic. If you can’t build a diagram of the family, there is very little chance that the family sees you as the family financial advisor. That’s a great homework assignment for you to figure out, how big of a problem this is for you.

So what did we talk about today? I made the claim that your client’s adult children are the biggest threat and the biggest opportunity for your practice. And we went through the three step process: how do you identify the Alpha? How do you get the parents’ permission to contact the Alpha? How do you get the Alpha to opt in to continued contact? And I’m convinced, if you implement this plan — And frankly, it’s not a lot of work. We’re talking about one phone call to the parents, one phone call to the Alpha and then adding the Alpha to your existing client contact program. It is a very easy thing to implement into your practice. I’m convinced that over time some of these heirs will convert over to be clients. Is it everybody? No. But there’s a significant subset of your client’s heirs who maybe they have a financial advisor but it’s not a high-quality financial advisor. Converting them over to work with you not only helps you preserve the assets, but I’m also convinced that multigenerational advice helps us avoid a lot of the problems that families run into.

I want to thank you for your time and attention today, and I want to encourage you to reach out to MFS. What I talked about today is only one small piece of our Advisor Edge Program. There’s a lot of different ways that we would love to help you improve your practice.

Disclosures:
Methodology: MFS^®, through Dynata, an independent research firm, sponsored an online survey of 1,001 individual investors. MFS was not identified as the sponsor of the survey, which was fielded in December 2022. To qualify, respondents had to have a household income of at least $50,000, use the services of a financial advisor, be invested in mutual funds and make or share in financial decisions for their household. Gen Y refers to investors ages 26 to 41, Gen X refers to investors ages 42 to 57, and Boomer refers to investors ages 58 to 77. These ages are based on calendar year 2022.
Neither MFS nor any of its subsidiaries is affiliated with Dynata.

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