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John Bowen

Wealth Transfer

If your clients have inherited money recently, they're probably looking for new CPA advisors.

November 3, 2008
by John Bowen, Jr.

For many CPA advisors, inheritors are an intriguing market. We all know that one of the best ways to garner new assets is to capitalize on those moments when money is in motion — during a divorce, for instance, or when a business is sold. And it's hard to imagine a moment that exemplifies money in motion more than when assets are passed from one generation to the next. When you consider the lofty numbers thrown around regarding the upcoming transfer of wealth — advisors frequently cite predictions that the baby boomers will collectively inherit an astounding $41 trillion over the next 40 years — it's easy to understand why lots of advisors are anxious to pursue the inheritors market.

The opportunity to build a great business by serving inheritors can be trickier than you might think, however. In many of my columns, I emphasize the importance of building your business around a single niche market whose members are likely to have similar occupations, live in a certain region and face similar financial challenges. And while inheritors might seem like an ideal niche market at first glance, the fact is that inheritors are of every age, occupation and location. They really share only one thing in common: They've inherited money.

This doesn't mean that CPAs should simply avoid trying to attract inheritors. It means that if you do, you must position yourself carefully and thoughtfully in order to win their business.

Big Changes

It's important for financial advisors to understand the profound effects that inherited money has on inheritors when developing a strategy to work with them. For example, nearly one-fourth (23.6%) of inheritors who received $3 million to $5.9 million quit their jobs, according to a survey of inheritors by Merrill Lynch Investment Managers and Prince & Associates. About the same percentage of those inheriting $6 million to $10 million (24.5%) left their jobs.

Inheritors also reported significant shifts in their lifestyle and spending habits. Among the group inheriting $3 million to $5.9 million, 69.8 percent said their lifestyle changed dramatically because of the new money — and 84 percent of the $6 million to $10 million group agreed.

These changes, not surprisingly, are good news for financial advisors. As with most of the affluent, inheritors want to work with advisors. Close to 100 percent of the surveyed inheritors said they wanted to work with an advisor because they were overwhelmed by the money they inherited and felt that it was too much for them to invest wisely. And nearly all said they didn't have the time needed to focus on investing. Finally, approximately half of the inheritors said they wanted to work with a financial advisor to "gain the peace of mind" that comes from trusting a professional with their new-found wealth.

Making the Cut

Such newly inherited wealth clearly spells opportunity for planners, as inheritors typically want professional financial guidance. But the important question is this: Will they want to work with you, specifically? Unless you're perfectly positioned, the answer is a resounding "no."

Consider that approximately 80 percent of the surveyed inheritors switched advisors after they received their assets. Why is this? After all, most advisors assume their clients are loyal and that a client who receives a big inheritance will keep working with the advisor who has been helping him or her for years or even decades. One big reason is because inheritors want to work only with those advisors who specialize in serving the affluent. So if you don't already focus on affluent clients, inheritors are probably going to look elsewhere for advice. This fact has enormous implications for many advisors and their current approach to business. The prospect of some smaller clients someday getting a big inheritance causes many advisors to retain those clients — even if they are currently unprofitable and not ideal matches for their firms.

The research should serve as a big wake-up call: Those clients will almost always feel they've changed in fundamental ways — and will likely feel they've outgrown you and your "limited" expertise as a result.

The efforts you've made at building the client relationship up until the inheritance won't matter much, and there is little you can do to keep these clients. Your ability to serve them well as smaller investors will be perceived as a detriment to meeting their needs as affluent investors. Similarly, many advisors believe that they will be able to work with the adult children of their existing clients once those clients pass away and leave money to the kids. Advisors thus try hard to develop deeper relationships with these children by holding family meetings and having another advisor in the firm work with the kids, among other strategies.

Once again, this is a faulty assumption. The same study shows that after receiving an inheritance, inheritors overwhelmingly steer clear of their parents' advisors and instead choose new planners — wealth advisors who they think can better meet their unique needs.

A little more than 79 percent of those who inherited $1 million to $2.9 million and $3 million to $5.9 million switched, as did almost 81 percent of those who inherited $6 million to $10 million. So what does it all mean? Don't spend lots of time attempting to woo your clients' children after they receive their inheritances. The research proves that you're almost guaranteed to fail.

Position Yourself

The better strategy is to position yourself now to attract those people who have recently inherited large sums of money. Think about it: If the vast majority of inheritors switch advisors or simply don't follow in their parents' footsteps, doesn't it make sense to position yourself so that you are one of those advisors they sign up with after getting their inheritance?

To attract the business of inheritors, actively position yourself as a specialist serving individuals who have inherited substantial amounts. By specializing in this way, you will become better at serving those who have inherited. Over time, this strategy will enable you to provide better service and counsel, thereby eventually bringing you even more inheritance business.

To get there, follow a three-step process for tapping into the lucrative inheritors market:

  • Form strategic alliances with professionals who work with inheritors. When someone inherits a great deal of wealth, they usually turn to certain professionals to help them sort things out — especially accountants, trust and estates attorneys and insurance specialists. By developing ongoing strategic alliances with these professionals, you gain access to their relevant expertise, and you also put yourself in an ideal position to receive their referrals.
  • Adopt a consultative approach to client relationship management. There is only a short window of time during which inheritors are likely to ask their attorneys, accountants and others for an advisor referral. To get that referral, you first must be in the minds of these professionals. You must impress them not only with your general abilities and dedication to inheritors, but also with a consultative approach to client relationship management. That means having a process that enables you to uncover the goals, values, challenges and deepest needs of inheritors, and then invest and manage their wealth accordingly. With such a process in place, you will develop the confidence and trust of these referring professionals and be able to offer any referred clients the best possible service and advice.
  • Position yourself as an advisor to the affluent. The research shows that inheritors want to work only with advisors who specialize in the affluent. You therefore need a compelling value proposition that clearly states that your primary focus is serving affluent investors. Of course, you can't just say that you specialize in the affluent market. You also must be able to deliver the service and expertise that the affluent demand — from investment management to advanced planning strategy in areas such as asset protection, estate planning and charitable gifting.

In short, if you want to work successfully with inheritors as a group, you've got to adopt wealth management as your business model. Furthermore, you've got to be proactive in your efforts — the research tells us in no uncertain terms that waiting around to receive assets from future inheritors is no way to run your practice. But if you are well-known in your community as someone who is positioned to help inheritors with their most important financial challenges, you'll earn their trust — and their business — for years to come. 

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John J. Bowen Jr. is founder and CEO of CEG Worldwide, a global training, research and consulting firm dedicated to helping advisors and the institutions that serve them become
more successful.