Educating Inheritors About Wealth Planning and Managing Financial Assets

Key Takeaways:

• The people who inherit your assets need to know how to manage that wealth intelligently.
• Wealthy heirs’ top priority is to identify and work with top financial talent to guide them.
• They also want to know what their wealth can accomplish.

The heads of many of the wealthiest families are concerned about their heirs’ ability to smartly deal with the money and business assets they will one day inherit. This is especially true among the first-generation wealthy.

Their fears are warranted: A full 70 percent of wealthy families lose their wealth by the second generation, and a stunning 90 percent by the third, according to the Williams Group wealth consultancy.1

For that reason, wealthy business owners often take steps to prepare heirs to take the reins of the company. Typically, that involves the heir or heirs getting hands-on involvement in the business and learning from the ground up (or sometimes from the second floor up). Additionally, there are many organizations and professionals—from business schools to life coaches, and from consultants to trusted advisors—that can provide instructional services to inheritors of family businesses.

But what about inheritors who won’t have managerial roles—passive owners? Likewise, what about heirs who may receive investment assets only—such as a sizable portfolio of liquid securities like stocks, bonds and mutual funds?

These heirs also need to know how to manage their assets intelligently and effectively so that wealth grows and is not eroded.

That said, it’s important to help heirs in ways that they’ll respond to and act on—otherwise, educational efforts can become nothing more than wasted time.

Helping inheritors get help

Based on considerable research into wealthy (and extremely wealthy) inheritors, we find that the great majority are not interested in learning even the fundamentals of money management and wealth planning. They want to turn to professionals to invest their assets and help them deal with the range of planning issues they can face—from tax matters to protecting their fortunes from legal challenges.

Wealthy heirs—the second, third and fourth generations—as well as others who may inherit significant wealth (such as spouses) tend to share two overarching goals:

Goal #1: Find and work with talented investment professionals and high-end wealth planners

Very few Super Rich—or even “just” wealthy—inheritors are going to personally manage their substantial inheritances. Most will turn over the day-to-day responsibilities to (hopefully) qualified professionals. Even when an heir takes an active role—such as in making direct investments in private companies—professional advisors are often part of the effort.

The most effective way to find high-caliber experts—and avoid those who lack needed capabilities—is to take a page from the playbook of the family patriarchs and matriarchs. The three main avenues the exceptionally wealthy use to find professionals to help guide them in managing wealth are:

• Referrals from other professionals. High-end professionals regularly know other types of high-end professionals. Finding a wealth planner or money manager this way is a very astute risk-reduction approach.
• Referrals from peers. This approach is much more common among heirs than among the older generation, as many of them have crossed paths at colleges and private enclaves.
• Prominence in the private wealth industry. Some professionals have a powerful and influential brand that draws the rich, the Super Rich and other leading authorities to them. Stature in the field also is important in getting other professionals or peers to recommend them.

In addition, four core criteria are central in selecting high-caliber investment advisors and wealth planners:

1. Proven integrity. By being meticulously attentive to making sure you choose a professional of the highest integrity, you’re avoiding the problems and wealth destruction that can occur if you work with predatory advisors who seek to exploit you.
2. A sense of purpose and a deep concern for clients. Elite professionals generally are driven and see their ability to deliver their expertise to their clients as a calling. Moreover, they are truly committed to making the lives of their clients meaningfully better in accord with the clients’ wishes and requirements.
3. Operational transparency. It’s essential that a professional be completely open and forthright with you. This takes a number of forms, including being very clear about the right to obtain second opinions, third opinions—whatever you want in order to verify the viability of the solutions proposed. Another aspect of operational transparency is fee clarity—knowing exactly what you will be charged for specific products or services.
4. Extensive technical expertise. It is usually necessary to consider numerous factors in order to effectively evaluate the technical competence of a money manager or wealth planner, including track record, professional experience, and recognition from peers in the financial and legal communities.

Goal #2: Understand what can be accomplished

Although they may not care to learn how legal strategies and investment products work at an in-depth level, inheritors tell us they do want to have a big-picture understanding of what they can accomplish with their wealth. Therefore, they can benefit from getting help developing wealth agendas that their assets can be positioned (by a professional) to support. Getting this type of high-level guidance and vision-creation often means working with an elite wealth manager* who focuses upfront on helping clients define their financial values and goals.

Deeper dives

Of course, some inheritors do want to learn and be involved in the technical aspects of investment management and wealth planning. Many organizations provide programs for teaching the mechanics of investment management to the next generation.

Example: A variety of wealth management firms (from private banks to multi-family offices) have developed instructional programs explaining how the markets and specific investments work. These programs address a wide array of issues, from the very basic (such as the difference between a stock and a bond) to more advanced investment management concepts (such as asset allocation, rebalancing and investment selection techniques).

When it comes to wealth planning, the focus is usually on an overview of the different types of planning services (see Wealth Planning Overview on page 23). Sometimes, the basics of the tools and techniques, such as trusts, partnerships and life insurance, are explained.

Important: While the wealthiest families, simply because they have the most wealth, may be especially concerned about how their children will shepherd the wealth they have created, getting educated on the basics of personal financial management and how to seek out high-quality expert guidance is a vital step for just about everyone. You don’t need to be a member of the top 1 percent or even the top 50 percent of Americans in terms of wealth to benefit from learning how to better manage your own wealth, get the help you need and avoid professionals who don’t have your best interests at heart.

Indeed, taking the right steps to become informed about managing wealth and access the expert guidance you may need could be just what helps catapult you to the highest levels of personal and professional success.

Action step: Contact your financial or legal professional about helping your heirs become better-informed about managing wealth and planning for their financial future. This can also be a good time to discuss any other financial concerns you may have.

VFO Inner Circle Special Report

By Russ Alan Prince and John J. Bowen Jr.

? Copyright 2018 by AES Nation, LLC. All rights reserved.

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The information contained herein is accurate to the best of the publisher’s and authors’ knowledge; however, the publisher and authors can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof.

Unless otherwise noted, the source for all data cited regarding financial advisors in this report is CEG Worldwide, LLC. The source for all data cited regarding business owners and other professionals is AES Nation, LLC.

Securities offered through LPL Financial. Member FINRA / SIPC. Investment advisory services offered through NewEdge Advisors, LLC, a registered investment adviser. NewEdge Advisors, LLC and Congruent Wealth, LLC are separate entities from LPL Financial.