Sturgeon changed his approach, from What would you like me to do? to Here's what we're going to do. And when he did that, the sisters breathed a sigh of relief. They pooled their father's many accounts into one joint account, split it in half, and invested in a moderately conservative mix of mutual funds. They now enjoy the security of their money, plus the comfort of feeling that they are carrying out their father's wishes, Sturgeon says.
As the "greatest generation" dies off, leaving their assets to their grown baby-boomer children, what has been called "the largest transfer of wealth in human history" is now in full throttle. Two-thirds of all boomers will receive an inheritance in their lifetime, according to a recent study by the Center for Retirement Research at Boston College. But only about one-fifth of that transfer has occurred. In dollar terms, $2.4 trillion has already changed hands, with another $9.2 trillion still to go. This generational transfer is so massive that it represents 18% of total household wealth in the U.S.
Financial planners, who have been seeing this trend cross the threshold of their offices, are about to see more of it. And while clients with inheritances offer new business opportunities, they also present unique challenges. Advisors may increasingly find that their work requires knowledge of psychology and history even more than finance and economics. As Robin Arnold, vice president of Wealth Management and trust liaison officer of the Palmetto (S.C.) Citizens Federal Credit Union, puts it, "The easy part is financial."
One of the biggest challenges is that inheritors can be completely inexperienced with money. They tend to fall into one of two camps: Those who quickly spend their windfall, or those who are overly conservative and risk-averse. It is, of course, the second group that will make its way to a financial advisor. And for those clients, the process of planning can be very emotional. Their newly gained assets are inextricably linked to the loss of their loved ones. They may harbor feelings of guilt having seen their parents struggle to save and accumulate, only to now control those same assets that they feel they didn't earn.
Be prepared for a slow process. "We let them dictate the timeline if there are no immediate needs to be addressed," says Joe Jennings, investment director for the Maryland region at PNC. "We try to be the voice of reason, and watch that their emotions don't cloud their decisions."
In Arnold's experience, it may take several meetings before they fully understand what they're feeling. And even then, "the emotion doesn't come out until you probe." He counsels inheritors to do nothing for a while, and only later will he exert some gentle nudging.
To make such clients feel at ease, David Britton, senior wealth planner for Fifth Third Bank in Cincinnati, shares the experience of his own loss, the death of his father when he was 24. He wants his clients to know he can relate to them and respects their feelings, but he also recognizes that this is "an exercise in diplomacy." When the time comes to move forward, he looks for that "line between seeming too cold and keeping to an agenda."
The process takes time, say advisors, not only for emotional but also for educational reasons. The older generation that accumulated the wealth, brick by brick, had a firm sense of goals. But the inheritors are often faced with a set of decisions that, until now, they've ducked.
Derek Frosh, senior vice president, investments, at Wells Fargo Advisors, describes a typical couple in their early fifties who have only $60,000 in their retirement fund. "Their inheritance, if invested properly, could make the difference between 'welcome to Wal-Mart' and a comfortable life," he says. But the hardest part can simply be helping the inheritors set their own goals.
For that reason, Britton finds the key is bringing the client back to the time before his windfall. "First, we do the basic planning we would have done," he says. "And only afterward do we incorporate the inheritance to see how it affects those basic goals and what extra they now can do."