Certainly, client retention and succession planning are two hot topics in the investment advisory business as well as other businesses. When the two come together, it provides an interesting and challenging opportunity for an adviser to prove his or her worth. Recently a client and one of her adult children came into the office for a review of the client’s plan as well as the financial situation of the child. The child was being groomed to take over the successful family business as the client, in her late fifties, sought a reduced workload and more opportunity to pursue lifestyle goals with her spouse.
Not surprisingly, the child was full of questions about the comprehensive financial plans we had prepared for the parents as well as concerning the proper investment allocation for that plan and, of course, tax planning. It is always encouraging for a parent to see that the child is interested and engaged in the family business as well as the overall financial and estate plan in place.
Following a lengthy discussion of the parents’ goals and estate plan and how the plan was tested against a variety of possible market results using Monte Carlo simulations, we found the child’s major focus was on the anticipated estate value. The child asked why we did not increase the exposure to equities in the investment allocation since that would provide a larger estate value upon the death of the client and her spouse. If we eliminate the child’s self-interest as a possible motivation, this question is an interesting one and provides a great opportunity not only to educate the child about making choices in financial planning but also about how our firm works and we add value for clients.
In this case, the focus of the client’s financial plan was naturally upon the client’s lifetime needs as well as those of her spouse. The estate goal was a nice to have and likely to be substantial, but first and foremost the client wished to have high confidence in achieving her lifetime goals whether the markets cooperated or not. Understanding this approach helped the child to understand why chasing returns and taking unnecessary additional risk was not the primary goal of the client, our firm, or the plan in place.
Although our primary focus was to serve the client and provide the best advice possible for her situation, we also wanted to work with the next generation child to ensure proper succession in the client’s family as well as to continue to work with the family going forward. Here we engaged in one of the important aspects of this service – education – to help achieve everyone’s goals.