Teaching children financial management early

There’s something of a debate among financial planners about whether they should try to keep the children of clients as clients too, given the data showing that heirs generally don’t plan to use their parents’ advisors. Some professionals argue those individuals still need financial advice, while others say it’s unrealistic for an advisor to expect they can switch over to serving a different generation.

Kaisth and others stressed the importance of bringing younger family members into conversations, in part, as a way to keep them as clients in the future, but also to educate them about financial management generally. If children have any earnings, their parents can start Roth IRAs for them, for example, or the kids can learn how 529 accounts will help pay for their college education.

“I do let [clients] know if they want to have an efficient, less stressful or perhaps stress-free transfer to the next generation, which every parent should want, then it’s better to start educating them about what it means to earn money, what it means to value money, how it can buy them options,” Kaisth said.

More education is essential for younger people who will be involved in overseeing a family business, even if they themselves are in a different profession, Amit said.

“It’s important that the next generation knows accounting, and they know how to read an income statement, how to read a balance sheet, how to prepare a cash flow report. Basic things,” he said. “It’s really, really important to engage them, because they will assume a major responsibility, and you have to be prepared for that.”

Amit and the others noted the growing impact of financial websites and apps that use artificial intelligence, which younger people are more likely to use and trust than their parents. None said they were concerned about losing work to newer financial technologies, but they warned against depending solely on AI-generated advice.

“We know that AI is still making a lot of mistakes. It does not always use up-to-date information,” Leis said. “AI also, at least the way that it is right now, it’s not proactive, so it’s not calling you, it’s not emailing you and saying, ‘Hey, by the way, have you talked to the estate, or have you filed this paperwork, or have you done this or that?’”

“AI is great and will give you insights that you couldn’t come up with on your own,” Amit said. “But that’s not a replacement for a trusted advisor.”

A more human-centered approach

The Great Wealth Transfer coincides with a wave of consolidation in the financial planning field as a generation of older advisors retire and sell their businesses, and banks and private equity investors see opportunities for big profits. Small firms also sometimes look to partner with larger ones that can handle their technology, compliance and overhead responsibilities.

Actual transactions are now handled by automated processes, and what customers increasingly need is planning, education and handholding during difficult life events like the death of a parent, Revelli said.

“These larger firms are now offering financial planning because they realize that there’s a need for more human-centered advice, and that’s the value that these smaller firms traditionally have had,” she said.

In general, to attract and keep clients, big institutions are focusing more on building relationships, she said.

“Advisors increasingly find themselves doing less of the transaction spreadsheet paperwork and more mediation and more counseling through these family dynamics, these conversations that these families need to have to really get to a good place,” she said. “There’s no one really at [the] center of having that family conversation, and the advisor is really positioned to do that, especially if they’re going to continue on with that relationship.”

Fidelity is also focusing on the “unique needs of women,” who are increasingly both bequeathing and receiving wealth transfers, and the greater diversity of Americans who are heirs and could benefit from planning assistance, Revelli said.

“In that great wealth transfer, recipients are going to look different than the people traditionally who have been seeking formal financial services,” she said. “There’s a wider demographic that needs help, but they also need a more human-centered approach than before.”