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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

In the actual meetings we spend more time talking with the young clients--learning about their lives and goals--and less time on the presentation than we had expected. We've had sessions with the parents present (at their request) and others where we have met only with the young person. Meetings without the parents have been much more successful--allowing us to talk more openly with the adult children and to begin to establish our own advisor/client relationship with them. Some of them express frustration that their parents don't always respect their choices in life, continue to exert control, and generally still view them as children. We listen and remind them that achieving financial independence is one sure way to limit their parents' ability to control them.

Prior to these meetings, without the young people present, we show our clients the presentation and ask them how much they would like us to reveal to their child about their financial situation. Most often, the parents are eager for someone else to tell their children that it's important for them to learn to make their own way--both for the sake of their own growth as a human being and for their parents' future financial solvency. While they are not eager for their children to know every detail of their financial situation, the parents want us to reassure their adult children that they need not worry about supporting their parents in the future, but that they should also get on with establishing their own financial independence.

Costs and Benefits
Counseling of this nature is not going to fit with every advisory practice. Each meeting requires some advance preparation and follow-up time as well as the time spent in the meeting itself. While we've had only positive experiences to date, it's possible that the child of a client may be hostile or difficult to deal with, or that something we say could spark a conflict between parent and child or within our relationship with the parents. Inherent in every client interaction is the risk of saying something wrong.

From our perspective, though, the benefits of building a relationship with the children of our clients outweigh these actual and potential costs. The overall time commitment has been relatively small, and we're always happy to provide an extra service that makes our clients feel that they are getting real value from the fees they pay us. We're reasonably confident that the young adults we have met so far feel more assured that their parents' finances are in good hands. Each has benefited from discussing his or her current financial concerns and sharing plans and dreams.

We think that advisors should view meeting with the children of their clients as a sound business-building strategy. The benefit to the whole family and to the advisor is significant: Parents feel increased good will toward you, and the children will know who to call with questions, both in the near term and in the future when their financial condition may be considerably more prosperous. At the core, most good advisors are educators, and guiding young people toward financially secure futures is intensely satisfying to our inner teachers.

It could also provide an additional source of income depending on your practice structure.  We do not charge a separate fee for meeting with our client's adult children, rather, we view it as a part of the integrated and coordinated services we provide to our clients. However, advisors working on an hourly or modular fee basis might consider providing this service for a fee.

In next month's column we will discuss our investment management strategy.

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