By Joseph Lisanti
Planning for a child’s education is a common goal for advisory clients. But beyond ensuring that a family can cover increasingly expensive college costs, how else can advisors aid their clients’ offspring?
Some parents look to a trusted planner to teach younger children about money; others want help for adult children. Advisors, meanwhile, are often eager to develop new relationships with clients’ kids to keep oversight of family assets after a parent’s death.
Planners must also understand family dynamics. “It’s a very delicate thing,” says planner Bryan Beatty of Egan Berger & Weiner in Vienna, Va. “You have to tread lightly and know when you can push and when you can’t.”
Planners approach the question of helping the next generation in a variety of ways. Here are some ideas that can work in your practice.
1. OPEN A BROKERAGE ACCOUNT
One way to work with a client’s child is to provide the same kind of advice the parents get – but on a smaller scale.
One of Denver planner A. Raymond Benton’s high-net-worth clients set up a brokerage account for a son majoring in business, funding a small account with a $500 gift – a stock he’s bullish on and holds in his own portfolio.
Later, the son added another $500 from his own earnings, buying more of the same small-cap stock – something Benton says came as a pleasant surprise to the father.
The experience has bolstered the son’s interest in investing, Benton says – although, of course, a single stock does not a diversified asset allocation make. “We’ve had a couple of conversations about it,” says Benton, who sees the account as a learning experience for the son. “You hope he’s not too successful, or it will spoil the education.”
2. OFFER THE VAULT
One way to connect with clients’ older children: Offer them a centralized paperwork hub. “We have the capability to store documents and share access to particular documents with the next generation,” Beatty says.
Clients can store wills, estate planning documents and other important legal instruments in the firm’s vault, so they can be shared with adult children in a private setting, when necessary. The children are allowed to see the actual account only if the parents authorize it.
Having everything in one place and readily accessible can relieve clients of a burden – and creates a connection, Beatty notes.
3. OFF-TO-COLLEGE MEETING
Some time ago, a client asked New York City planner Erika Safran to meet with his college-bound child. It went so well that Safran turned the meetings into a regular offering.
She doesn’t offer specific advice, she says, but rather encourages the young person to be “financially aware.”
For example, Safran might offer teens a different way of thinking about the oft-condemned “$4 coffee.” A fancy latte might not make financial sense in a takeout container, she suggests, but if the purchase establishes a place to chat for an hour with friends, “consider it the price of entertainment.”
Other topics might include the use of online banking versus a checkbook, or whether the child would prefer that parents provide a monthly stipend or a quarterly sum to cover three months of expenses. Safran says the conversations invite young people “to think on their own.” Each future freshman leaves with a handout on the topics discussed.
Beatty’s firm has two annual events for clients and their families. The first has nothing to do with money: “We have a family fun day where we invite kids and grandkids,” he says. Past activities have included picnics and a day at the batting cage – and there is zero talk of investments or financial planning. “We get to know who they are,” Beatty says.
Likewise, the clients’ children get to know members of the firm. Down the line, when the younger generation is facing the serious illness or death of a parent, “they’re not picking up the phone and calling a total stranger,” he says.
The family fun day is only few years old, but Beatty is optimistic. “I think it’s going to grow,” he says.
The firm’s other annual event is a half-day educational program aimed primarily at adult family members; it draws 50% to 60% of the firm’s clients, and many bring a guest. There are classes on financial topics as well as activities like wine tastings or a primer on classic cars. Food and drinks are served, and there is entertainment.
5. SET UP A TEEN IRA
Starting a Roth IRA early means extra years of compounding for the younger generation – and, potentially, a considerably larger nest egg. Yet persuading a teenager with an after-school or summer job to set aside money for a goal 50 years off is not particularly easy.
“It’s a tough sell,” says Ray Mignone, a fee-only planner in Little Neck, N.Y., “but usually it’s the parent who’s doing the selling.”
That sale is easier if the parents fund the account, Mignone says. That way, the teens can spend their own pay and still get a jump on retirement savings.
Of course, not all advisors will be practicing long enough to see multigenerational client relationships develop from the establishment of a teen IRA. Yet the effort can help to cement the advisor’s relationship with the parents.
And Mignone points out that most of his next-gen clients are adult children who inherit assets on the death of their parents. If the parents were pleased with Mignone’s efforts, the children tend to leave the assets in his care. “And they usually add money,” he says.
6. LOOK BEYOND THE 529
Of course, one of the best ways to help clients’ offspring is to help parents fund the child’s education. As with any tool, use of a 529 plan depends on a client’s circumstances.
“I put the higher priority on retirement savings,” says David McPherson of Four Ponds Financial Planning in Falmouth, Mass., “but I’ll still encourage people to set up the 529 and make monthly contributions, even if they’re very small.” At the other end of the spectrum, wealthier parents can “lose some flexibility” by sticking solely to a 529 for college funding, McPherson says.
For clients with sufficient assets, he recommends adding a taxable account to the education-funding mix.
7. LET THEM LEAD
Some advisors actually prefer to steer clear of multigenerational relationships, saying it introduces a level of conflict as adult children gain visibility on the size of their parents’ estates.
Roger Pine of Briaud Financial Advisors in College Station, Texas, says his firm offers to advise the adult children of clients at no charge—but only if the children request the help.
A client’s children might feel obligated or resentful if they don’t hire the advisor themselves, straining the professional relationship, Pine says. And if the advisor has no rapport with the adult child, that lack of chemistry could ultimately sabotage the relationship with the parent.
When the decision is left in the younger generation’s hands, the silence is deafening. “They almost never call,” Pine says.
Joseph Lisanti, a Financial Planning contributing writer in New York, is a former editor-in-chief of Standard & Poor’s weekly investment advisory newsletter, The Outlook.
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