Generational Wealth Transfer & Risk Management Planning

We have been beating the drum about generational wealth transfer for a very long time. We’ve written many articles discussing the inevitable generational wealth transfer and what RIAs should be doing to prepare for this event. We know that approximately $68 Trillion will be transferred by almost 45 million households in the US over the next 25 years.  We also know that those assets will be passed to children, grandchildren, and charities. But, what we don’t know is what portion of that $68 Trillion, which is under your management, will be lost to other RIAs when it transfers to the next generation or other beneficiaries. If you and your practice have not developed a solid plan to engage and nurture relationships with those beneficiaries, you may lose that portion of your AUM along with the opportunity to welcome new clients.

The Risk Management Discussion

Others have also written about this topic. Matt Reiner’s article in Advisor’s Perspective entitled Capturing the Wealth Transfer to the Next Generation and Erin Fossett’s article on WealthManagement.com entitled 7 Steps to Building Long-Term Value Into Your Investment Practice discuss very important points such as diversifying your client base, building your brand, investing in technology, etc., to help retain and expand your client base. However, neither of them addresses the fundamental issue that I have been talking about for a long time – RISK MANAGEMENT – mortality risk, longevity risk, morbidity risk, and the risk associated with taxes. Consideration of risk is just as important as making sure your client’s assets are invested in the right funds/ investments.

1. It addresses your fiduciary obligation to your clients. Having a serious discussion about risk management with your clients is important in completely fulfilling your fiduciary responsibility.
2. The use of risk management solutions helps to preserve and protect the wealth of the client and the ultimate beneficiaries of the client’s estate – children, grandchildren, and others (such as charities) to whom you also owe a fiduciary duty.
3. It fosters relationship building with the next generation – a reason that is also emphasized in both articles.
4. Finally, all three reasons above help to protect the value of YOUR business. Risk-based products either preserve the value of your book OR replenish assets that have been spent down as part of a client’s retirement planning or end of life needs.

If you do not possess risk management expertise or have access to an existing network of insurance professionals, the Insurance Network for Fiduciary Advisors (IN4FA) can help. We have a curated network of experienced, licensed, and successful risk management professionals with varying specialties who can collaborate with you and your clients.