Generational succession isn’t just a consideration for wealthier families looking for the most effective way to pass wealth to their heirs. It has a major impact on advisors, as well. Financial planning and portfolio management firms—even lawyers and accountants—spend years (sometimes decades) building relationships with wealth builders. But when those individuals pass away, their children will sometimes seek assistance from other professional service providers. And that’s why advisors should look to philanthropy as a tool to engage the next generation—but more on that in a moment.
First, consider this: A U.S. survey by financial industry research provider Cerulli Associates found that “ … more than 70 per cent of heirs are likely to fire or change financial advisors after inheriting their parents’ wealth.” Why? We know anecdotally that while some heirs will continue trusting the advisors that helped ‘mom and dad,’ others will seek to chart their own path. Some will believe that they can get better service or improved financial results by moving to a different advisory firm. Others may simply prefer to tap the services of an advisor in their personal or peer network. Sometimes they’ll opt to work with an advisor whose life stage and personal circumstances align more closely with theirs (perhaps they both have young children or share common interests, for example).
Whatever the reason, as RBC Wealth Management notes, Canadians are in the process of passing down approximately $400 billion in wealth to their inheritors as the Baby Boomer generation ages. That poses a very real challenge for advisory firms that must now find ways to maintain those relationships, preserve their business and continue to serve the heirs’ best financial interests. As Cerulli pointed out in its report: “Advisory practices that have not already done so will need to shift their mindset and strategically engage their clients’ spouses and children on a more regular basis.”
A new way of looking at wealth
Data shows that Millennials are generally giving less than previous generations. That follows a persistent charitable giving trend amongst all Canadians—even though at Canada Gives, we’ve seen a clear pattern of the most committed philanthropists giving larger gifts and being more engaged in their giving as a whole.
But what’s undeniable is that the younger set are deeply passionate about the causes they do embrace. They want to understand the charities they’re supporting and align themselves with organizations that reflect their values. They tend to give directly to causes where they feel they can generate a significant impact. Then they’ll spread the word about that organization and its work, often across their personal networks using social media as their primary broadcast tool.
The challenge for advisors is understanding how future inheritors’ desired legacy differs from that of their parents. In many cases, the macro values are nearly identical: all generations that are philanthropic want to make a lasting impact with their money. Yet the real difference is in the details. How Millennials (and even Generation X) will give back is typically a departure from their parents and grandparents, even if the giving goals and objectives are the same.
We would say this ties into another broad trend, which is a focus on financial wellness rather than a determination to build wealth for wealth’s sake. Younger generations are more inclined to view their financial situation holistically, and an important—very fundamental—question drives their decision-making: ‘What does this money mean in terms of helping me achieve my lifestyle goals, while leaving the next generation of my family—and the world around me—better off?’ In other words, they see money as a tool to do good and live life to the fullest.
In that sense, advisors are wise to add a heightened focus on personal lifestyle considerations as they fulfill their traditional fiduciary duty to help clients build and grow wealth and, generally, manage their financial affairs in a way that generates optimal results.
Family philanthropy offers a powerful entry point to engage inheritors before wealth transfers between generations. It’s a way to signal that advisors understand their future clients’ needs and goals. Perhaps most importantly, it’s also a means to entering into a longer-term conversation that can be nurtured over time.
Philanthropy takes on a far greater meaning for wealth builders, who are often just as passionate about fostering shared familial values and ensuring that generosity becomes a family trait, as they are about supporting their favoured causes. In the case of Canada Gives donor clients (many of whom are middle aged or in their golden years), for example, we find that their focus tends to be on building a legacy of charitable giving that extends from parents to children to grandchildren. They often realize that setting a plan to give back as a unit is not only a way to do good for longer, but to also encourage bonding and engagement amongst family members. In short, it’s a great excuse to get together beyond holidays—or to spend even more time together around those set calendar gatherings—and engage in conversations about their charitable giving.
Advisors have an opportunity to help the families they serve by working to set a strategic donation plan with tax and estate planning support that helps achieve their giving objectives. Alternatively, they can also introduce a professional philanthropic consultant such as the client services centre at Canada Gives into the conversation to generate ideas and create a platform for a discussion of shared vales and charitable goals. But a key starting point for advisors is acknowledging this opportunity and embracing it.
At that point, it’s about making sure they address inheritors’ unique aspirations when it comes to philanthropy. But how? Find out in our next blog.
The Canada Gives team