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FAs Shouldn't Rely on Trust Funds for Client Transfer

By Crucial Clips     August 23, 2017
The following text is a transcript of a portion of a speaker's presentation made at an industry conference or during an interview. This transcript solely represents the view of the individual who spoke, and not the view of Financial Advisor IQ or any other group.
Source: FA-IQ, Jun. 28, 2017 

RITA RAAGAS DE RAMOS, SPECIAL PROJECTS MANAGER, FINANCIAL ADVISOR IQ: Hello, I’m Rita Raagas de Ramos, from Financial Adviser IQ. With me is David Geibel, senior vice president and managing director of Girard Partners, an RIA within Univest Wealth Management. With many of the wealthy, older clients, one of their top priorities is succession, you know, passing on the wealth to the next generation. This is a top priority for many of them. How does your company deal with this issue? How do you help these clients, in terms of achieving that goal of successfully passing on the wealth, and instilling that financial acuity to their children?

DAVID GEIBEL, SENIOR VICE PRESIDENT & MANAGING DIRECTOR, GIRARD PARTNERS: So the most successful clients we have have had virtuous wealth savings and education within their families through multiple generations. And that’s something we try to instill in our clients, that you’ve worked hard, you’ve been successful, you’ve educated your children. They’re now off on their own. But the job doesn’t start there. Just leaving them a large amount of money, without the knowledge and/or experience to handle that responsibility, can certainly leave a vacuum on wealth passing to their-- to the next generation.

So what we like to talk to our clients about is, now that your kids are perhaps out on their own, maybe they have their own family — teaching them the value of what portfolio growth can look like, helping them get established in their 401(k), starting a gifting strategy. Even perhaps, that gift is in the form of stocks. Do you want to use trusts? Do you want to help with 529 plans for the grandchildren?

We find a lot of our clients today are interested in giving them money now, as opposed to in the afterlife. But we would also say to them, hey, it’s not just give the money to your children, or grandchildren. You have to teach the virtue, and give them the experience of being an investor, much like you have today. And that also comes with teaching them how to budget, making sure they’re doing the right — making the right financial decisions. Perhaps it can be a gift, or a down payment for a home. But the parent, or client, can also teach them, or show them, the best way get a mortgage, something along those lines.

RITA RAAGAS DE RAMOS: So in essence, it’s not enough to have a trust fund that’s sitting there, waiting for the children. They have to be more proactive now.

DAVID GEIBEL: Without question, and really it should start earlier than after they have graduated from college, or started their professional career. We’ve all heard the horror story of the child receiving the massive trust fund, but that really has little understanding or value. I just recently had a client who left money to his two granddaughters. And he’s been with them along the whole way, teaching them what it means to be an investor, or having a long term outlook. And taking on the responsibility of having money, as opposed to just spending it now.

RITA RAAGAS DE RAMOS: So you also talk about the tools that you give your clients in order to pass them along to their children. Can you give some practical examples of what these are? Like, how they can help their millennial children be more responsible with the way they manage their money, and prepare for investments and retirement?

DAVID GEIBEL: Well, the first thing is if you have the skill set as a parent, if you’re pretty financially savvy or sophisticated, coach your children. Make sure you’re there to not judge, but to be an open resource for them to bounce ideas. Perhaps you start an account with them and gift some shares that have been appreciated for you, or money. And start teaching them the value of investing. Perhaps you have a wealth advisor, like our firm, that you can put them in touch with. The process can be gradual.

The other thing we like to talk to our clients about helping their children is, coach them along the process of life events. So for example, helping them with paying back their student loans, or refiling a student loan, helping them when they get that first mortgage, looking at a buy versus lease option on a car. So you’re not trying to do everything at once, but as life events dictate, you can step in and act as a coach or a guide. And you have to do that in a non-judgmental way.

The other thing we try to coach our clients on is, if the money is going to your children anyway, and you have excess capacity — meaning you have more wealth than you’re going to spend — is there satisfaction in helping your children today, as opposed waiting 15, 20 years down the line? Because let’s face it, starting a family, and you’re young, you’re in your 30s, it’s a very financially stressful time. And we find our clients feel pretty good about doing things now. But they still have some control. It’s not just an open paycheck, or a blank check, to their children.

RITA RAAGAS DE RAMOS: Thank you, David.

DAVID GEIBEL: Thank you.