I would like to thank Oxbow Financial for the opportunity to speak to many of their wealthy clients. Oxbow put on a wonderful event educating their clients about findings from our research. We presented data to these investors so they could gain an understanding about multiple topics regarding households like themselves. Their interest level in these topics allows Spectrem to focus our research on topics investors care about...with the hope that we can educate advisors to discuss relevant topics with their clients.
The topic that generated the greatest amount of discussion was at what age should they tell their children they are wealthy? Well, the best answer to that question is “that is a personal decision”. But that isn’t a satisfactory answer for these investors. What we have found in our research is that the most common answer is between the ages of 25-35. Of course that depends upon the maturity level of the individuals involved and other relevant circumstances. For example, if a child is involved in a family business they may need to be communicated with earlier rather than later.
Why is it important for advisors to be involved in this communication? Because we find that if the advisor doesn’t become involved with the children before the age of 30-35, that child is likely to find his or her own advisor.
Meeting the children is no longer a problem for most issues. When we started doing research with households with more than $25 Million of net worth more than a decade ago, many older investors did not want to tell their children about their wealth until very late in their lives. But today 72% of investors with more than $25 Million of net worth believe their children need to meet their advisor. In fact, 75% of these wealthy households indicate that their children have already met their advisor and 75% will encourage their children to use their advisor.
Advisors need to realize, however, that investors believe that financial advisors need to have programs to educate their children about wealth. These types of programs are really important for many of these families, especially if they are the first generation of wealth.
What should be included in these programs?
- Information about estate planning and wealth transfer.
- Education about college planning. While there are various tools they may want to use such as Section 529 plans or Roth IRAs, that’s not the only part of the process. They need to understand the college application process, who can help them with the process, and what is important. Remember that, depending on their age or background, the whole SAT/ACT process and the difficulty in being accepted at various schools is different than twenty years ago.
- Insurance expertise...we find that many times wealthy households have adequate life insurance but not always the right amount of excess liability insurance.
- Ongoing education regarding investments.
It’s helpful for wealthy investors to understand how other households like themselves make decisions. How much support do they give their children and for how long? How do they teach children appropriate values so that second, third and even fourth generations of wealth are able to maintain not only their wealth but the family legacy?
We just completed some research with investors in the $100,000 to $25 million wealth levels regarding parenting entitled Parenting and Financial Decisions.
It’s time for advisors to really think about the facts that would help investors feel comfortable with not just their investments but other life decisions.