For advisors who hope to hold on to assets under management through the coming
Only about 20% of affluent clients choose to stay put with their parents' advisors, the research firm found in a report released on Tuesday. Cerulli came to that conclusion from a poll it conducted in June of roughly 800 investors with $100,000 or more investable assets or an income of $125,000 or more if they were under the age of 45.
The results also suggest that of affluent clients who are still with their parents' advisors, roughly 1 in 4 will be looking to go elsewhere for advice in the next 12 months. That means that advisors who are hoping to continue managing at least a large chunk of
Widows, by contrast, tend to be much more willing to stick around than the children of affluent investors. Cerulli found that only 15% of married women change advisors following the death of their spouses.
Though the results suggest there could be a rough road ahead for entrenched advisors, they also spell opportunity for newcomers to the business. But young investors' unwillingness to keep wealth management advice "all in the family" will almost certainly come with costs, Cerulli warns.
Families that stick with one advisor or team of advisors
Sometimes, said Ian Bloom, the owner of Open World Financial Life Planning in Raleigh, North Carolina, it's advisors who are to blame. Bloom said his father about 10 years ago used his advisor at a large broker-dealer — which Bloom declined to name — to pass on a relatively small amount of money to him.
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Because the account had only five figures in it, the advisor — who had worked with both Bloom's father and grandparents — quickly lost interest in Bloom and passed him off to someone else in the firm. The new planner had no relationship with Bloom's family, he said, and didn't seem eager to strike up a new one with Bloom.
"I was kind of grandfathered in because my grandpa had a large amount of money with this advisor, and my parents had also," Bloom said. "So, of course, they wouldn't have told me that I didn't have enough money in my account, because that would have been a disservice to my parents. But they didn't want to invest time in educating me about this account and my options."
As Bloom embarked on his own career as a financial planner, he began asking questions and came to see he was receiving short shrift from his parents' advisor. He eventually decided to manage his money through his own firm.
"To be fair, economically, it didn't make much sense for them to keep me," he said. "But I was made to feel I wasn't a high priority."
Bloom said he has seen the other side of the story. In the mid 2010s, he put a great deal of work into helping an elderly couple unwind some complex annuity investments. Bloom quickly realized that the couple's three children had a strong interest in making sure their parents remained financially independent and should be helping to make some of the decisions.
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He tried to find dates and times when they could all meet to discuss their next steps, all to no avail. Their schedules never seemed to line up. Pretty soon, Bloom said, the project was "lost to time."
Bloom said the couple was very well-to-do, so he doubts that running out of money was ever a concern. Still, he was hoping to build rapport with the couple's children and eventually become their financial advisors. He's not sure if they've moved on to another advisor, but they are certainly not working with him.
"It was too bad," Bloom said. "I had a bunch of recommendations that I think would have made their lives less confusing and made the money last a little longer."
John McKenna, a research analyst for retail investment at Cerulli, said the report should remind advisors to get their clients' children involved in planning decisions as early as possible. McKenna said he thinks there is a particularly large opportunity now among millennial investors who are approaching their 40s and are coming into money for the first time.
"So, if you have a client who's a parent, and they have millennial kids who have these needs, that's half the battle won," McKenna said. "Something like this can start maybe as a convenience relationship, but it doesn't mean that convenience relationship can't become a choice relationship."
Of clients in different age groups, the youngest were actually the least likely to look for advice elsewhere. Cerulli's report found that 59% of affluent clients under the age of 30 turned to advisors other than their parents, as did 69% of those under 40. In the 50 to 59 age group, the rate jumped to 81%.
McKenna said those numbers most likely reflect people's increased willingness to seek out advice as they approach retirement age.
"And you're getting that kind of demographic that advisors look for when they're trying to prospect for clients," he said.
One of the biggest ways for advisors to help their clients' children, of course, is to facilitate the transfer of assets from one generation to the next by helping to set up trusts or estates. Yet too few firms are equipped to offer these services.
Cerulli's report cited concerns about relationships as the main reason clients decide to seek advice elsewhere. Among respondents who said they would look to move their business in the next 12 months, nearly half said their priority was transparency in their dealings with advisors. And 45% said they wanted to work with someone to work with someone who takes time to understand their "goals, needs and risk tolerance."
Rather, it means that there is plenty of opportunity for small, fee-only advisory firms to step in and differentiate themselves from the large brokerages and wirehouses that have dominated the industry for so many years. Berenbaum thinks clients rarely go looking for a new advisor because they want a different investing strategy from what their parents had or are interested in investing in less conservative and possibly more innovative ways.
More likely, she said, they simply want someone who's willing to listen.
"They don't want you to make the assumption that just because you know the parent, you also know the child," Berenbaum said. "Every client wants to know that they are known and heard and listened to. So it's more about that relationship than specific products."
Among affluent clients who did move on to another advisor, Cerulli's research did reveal a slight preference for working with larger firms. Nearly 4 out of 10 of those who said their current advisor is not the one used by their parents went to one at a large national institution such as a bank, broker-dealer or asset manager. Only 17% chose advisors who operate their own practices.
For advisors who do manage to retain their clients' children, there are reasons for optimism. The research firm found that 96% of affluent investors who stayed put said they'd recommend their parents' planner to other people. Only 86% of those who moved said the same.
Also, among affluent investors who didn't change horses midstream, 38% said they had no trouble working with financial advisors. Only 50% of the respondents who switched could say the same.
Above all, McKenna said, the results show that now is no time for complacency for advisors who are hoping to extend their relationships with clients into the next generation.
"It's about incentivizing that conversation, or telling the parents specifically: We'd like to have a family talk about the family wealth strategy,'" he said. "It would be great if you invited your kids to come to this meeting with us."
