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Building the Business 101: The Next Generation

Building ties with clients' children can pay off in several ways.

Veena A. Kutler and Annette F. Simon, 10/25/2007

This monthly series of articles describe the many steps and occasional missteps we have taken in building our financial advisory business, Garnet Group LLC. Currently, Garnet has eight staff members, more than 90 clients, $300 million in client net worth under advisement, and offices in Bethesda, Md., and Boston. Veena Kutler, CFA, and Annette Simon, CFP, are the principals managing the Garnet office in Bethesda.

The next generation has received a lot of attention from the advisory industry media in recent months. Under-35 planners have been speaking up and letting the rest of us know that they have arrived. They're well-educated, ambitious and ready to take the reins.

As the industry works through the integration of this new and different generation of professionals, we at Garnet are dealing with another next-generation challenge--the young adult children of our clients. Like the rising cadre of planners, the offspring of our clients are critical to the future success of our business. And just as younger planners have high expectations from their employers and strong opinions about their anticipated career paths, so too do our next-generation clients expect a certain level of security, comfort and flexibility in their lives--even as they are just starting out on their own. However, unlike the next-generation planners, our clients' 20-something children are not knowledgeable about financial matters. While they are universally bright, motivated, and committed to their chosen fields, they are generally unaware of the steps needed to begin building toward their own future financial independence.

Why Meet with Clients' Children?
As our regular readers may know, in our practice we enforce a minimum retainer fee and provide a proactive, high-touch service to a smaller group of families whom we can profitably serve. One implication of a higher minimum is that many of our clients are in the pre-retirement to retirement phase of their lives. More than two thirds of our clients in Bethesda are older than 50; in Boston, 60% have passed the half-century mark. These statistics aren't likely to surprise our colleagues, especially those working with high-net-worth clients. Unless you inherit or experience exceptional business success, it takes many years to build the significant level of assets our clients generally have.

While we thoroughly enjoy our middle-aged clients (who are, after all, our cohorts) we both love working with younger people as well. As moms with five children between us ranging in age from 15 to 22, we have considerable expertise in communicating with young adults. Moreover, we're not so old (yet) that we can't appreciate the energy and idealism of youth or empathize with their impatience and inexperience.

Because of this, over the past year or so, we began to probe our clients whose children are (or should be) preparing to cut their financial ties to their parents. During our regular meetings with them we've begun to ask how the parents communicate with their children about financial matters and what they have done to encourage their children to achieve financial independence. We've learned that some parents are struggling in this area. We often suspect that parents would rather discuss sex with their children than have a frank conversation about money! As parents ourselves, we empathize.

Our clients are smart, accomplished people who have achieved significant financial success. However, most of them need to conserve their assets for their own retirement. To their children, they appear to be living the good life--and to have deep pockets that the kids can draw from until they are ready to fly on their own. But the reality--that our clients have been reluctant or unable to share with their children--is that they cannot continue to support their children through their early adulthood if they ever hope to achieve their own dreams of financial freedom.

When we asked these clients if they would like for us to speak to their young adult children about finances, spending, and the value of money, their responses were immediate and effusive. Like us, our clients think that their children give more credence to advice from other adults than words of wisdom from their own moms and dads. They were delighted to have a couple of professionals spend some time teaching their children the financial facts of life, and we were equally happy to have the opportunity to get to know some of the kids we've been hearing about for years and to help them understand more about how money really works. Our "What You Need to Know about Saving and Investing" sessions have been a win for everyone and fit perfectly with our coordinated, holistic service.

What Do We Tell Them?
To meet the challenge of educating the next generation about money matters, we created a broad but basic PowerPoint presentation covering what we thought every young person should know about money, working, saving, and investing. We provide charts that illustrate the impact of inflation, the staggering numbers relating to retirement, the painful impact of taxes and some key investment concepts. We also provide a sample budget and some fundamental definitions (for example, most people don't really know the difference between a stock and a bond). Finally, we assembled some essential tips and words of wisdom--antidotes to the screaming headlines we see on consumer finance magazines and programs. Our goal was to give them the education that we wish we had received as young adults starting out in the world.PAGEBREAK

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