New Target of Financial Planners: Clients’ Kids
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BETH PINSKER GLADSTONE
Reuters
December 2, 2013

Clients often ask financial adviser Grant Rawdin to teach their children about money before they send them off to college or to their first jobs. After years of doing so, he had an epiphany: He needed to sign those young adults up as clients, too.

Rawdin now hands out a formal engagement letter to the younger generation to officially link them to his firm, Philadelphia-based Wescott Financial Advisory Group.

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It sounds logical, but it is not the obvious choice for most advisers since most young adults often do not have enough money to merit the time it takes to manage their portfolios. Yet someday they might, either with their own earnings or an inheritance. Some $30 trillion will change hands to Generation Y, generally defined as people born after 1980, over the next 30 years, according to consulting company Accenture Plc.

"I think young people do want to be taken seriously," says Eleanor Blayney, consumer advocate of the CFP Board trade group for financial planners. "They don't demand a lot time, and it will ultimately will come to pay off.

"Any advisor who is looking at the future will want to think about how to engage them."

Bundle Up
Most advisers do not have a formal approach to dealing with the children of their clients, but some are doing more than arranging a few mixers.

Grant Rawdin has a more structured plan. He started with a "friends-and-family" package, and after "incremental epiphanies," he formalized it into a program called Entrada, the Spanish word for "entrance," in July 2012. "It's a strategic pipeline," Rawdin says.

Related:  Wealth Management: Trust Your Heirs Not to Squander Your Estate 

The minimum of investable assets is $250,000, and the main focus is on long-term planning. Some of the firm's premier investing opportunities for those who meet the $2 million minimum are not available at this level.

A more common option is to bundle family services. In many cases, the main client's fees cover the kids.

At Cincinnati-based Truepoint Inc, advisers start signing young clients with custodial accounts as soon as they reach the age of maturation, which is 21 in most cases. The accounts are not subject to minimum fees, and pricing is worked out for each client, says Michael Chasnoff, founder and chief executive officer.

In one family, the main clients are a couple in their 60s who have a net worth around $12 million. The grandmother, in her 90s, is also a client, as are two of the couple's four children. "When our client passes on, there will be a significant amount to distribute - far more than from Grandma," says Truepoint adviser John Evans.

While the account is "not a home run" for the firm at this point, he says, the goal is to keep managing the money as it passes through generations instead of losing it as the kids go their own ways.

The approach of Ballou Plum Wealth Advisors of Lafayette, California is to give away up to three hours of financial planning advice free to the children of clients. If they need anything more than that, hourly fees for financial planning get bundled into the parents' bill. Since she is worried about spending too much time on small accounts, she is progressing slowly. "Let's say I have $1 million client, and they have four kids," she says. "If they split the money at $250,000 each, we're backsliding."

Nevertheless, she has been able to manage the time so far. "I can see where there might someday be a client whose child needs so much," she says. "In that case, we'd find out what the break point is and go to the family and discuss it."

Best Referrals
One side benefit that financial adviser Paul Jarvis has found is that parents make wonderful cheerleaders in a business that is all about referrals. The Fargo, North Dakota-based certified financial planner works with a married couple who, when their kids come of age, send them a letter strongly encouraging them to work with him.

"I just about cried when I read it," Jarvis says. "They wrote: 'We think you'll end up having substantial wealth, and you need to know how to manage it. Paul is going to do a great job understanding your goals.'" That family is worth more than $10 million today, he says, and he has five family members as clients. He is confident that developing relationships with the younger adults over time is the best strategy.

While none of Rawdin's young clients have hit the jackpot yet, he is also satisfied with the results so far.

"You can't make a business out of it," he says, "but you can grow a business out of it."