We believe that financial advisors should engage their clients in a holistic wealth-management process. This can—and should—include direct interaction with multiple generations.
A great question to ask here is, How can a financial-planning process help you transfer your work ethic, diligence and unique set of values to your family’s subsequent generations? One great way we’ve found to do this is to start early, integrating consultative guidance when children are still at a young age.
For work with recent graduates and young professionals, guidance can come in a variety of forms. Initial dialogues tend to focus on the importance of developing a budget framework for living expenses. Then, the resulting conversations can expand to more complex topics.
What is the best track for establishing and maintaining healthy credit? How can credit, when not used out of necessity and managed properly, yield both immediate and long-term benefits? Other discussions involve protective measures against fraudulent activity and the personal liabilities that come with that first apartment off campus.
Then there’s the employment piece: In addition to the daily demands of their employer, your grown children, in their first full-time work role, will have to navigate an array of new responsibilities. What benefits does that employer provide, and should your child be participating in group coverages? How does he or she make sense of the company’s retirement-plan options?
Often, we see our second-generation clients overlook their future needs. This inaction results in missed opportunities and creates situations where potential compensation is left on the table.
In addition, at this stage with younger clients, we also observe that along with independence comes a heightened awareness of their own expanding balance sheets. This may be the first time they are earning more than they spend. So, this is a good time to reinforce the value of creating an investment plan. And, in this context, we welcome the opportunity to work with parents to help their children develop their own disciplined investment processes.
Meanwhile, for older second-generation clients who have achieved a degree of financial independence, changing circumstances can generate new opportunities of their own.
How can these older family members access funds to capitalize on a new home opportunity in a cherished location? Say that someone has a great opportunity with a competitor on the other coast: Does he or she have the resources to relocate comfortably?
And what about that grown child’s graduate education? How does the parent or grandparent bridge his or her living expenses during that child’s two years of business school?
Proper assessments of situations like these allow the first generation to assist with constructive support for their children. And professional guidance here can utilize a family’s resources to enhance children’s lives without jeopardizing their self-sufficiency. Conventional approaches to measuring the effectiveness of a wealth-transfer plan tend to concentrate only on assets and tax savings. But the intangibles of education, work ethic and family principles may be far more important to families. After all, those values were likely the cornerstone of the family’s wealth in the first place.