Advisors with baby boomer clients are facing something of a math problem. Boomers are expected to pass down $51 trillion in assets to heirs and charities by 2042, but 70% of heirs don’t retain the advisor who previously managed their inherited wealth, according to Cerulli Associates.
Establishing an intergenerational wealth transfer plan can help advisors avoid getting fired by the heirs, Cerulli says.
Advisors with high-net-worth clients succeed in retaining assets by involving spouses and children in the financial planning process, according to Cerulli HNW analyst Chayce Horton. Doing so helps with the continuity of estate plans and the stickiness of client relationships from one generation to the next, he says.
Around 91% of the "more than 200 advisors" with high-net-worth clients surveyed by Cerulli in January to November last year said that spouses or significant others of clients are either established clients or actively involved in the planning process. Around 54% said clients’ children are involved in the same degree.
Advisors “commonly hold informational or networking sessions with clients’ children to spur or gauge interest,” Horton said. “These sessions often focus on interests of the children such as philanthropic goals or ESG investing.”
Among advisors who have put in place a multigenerational wealth transfer strategy, 71% said they used a trust vehicle, while 57% said they took part in family meetings and engaged in regular communication.
A challenge for advisors working with baby boomers is tax minimization — 61% of those surveyed said it is very important for their HNW clients, second to wealth preservation, according to Cerulli.
A common strategy has been to defer income and capital gains, but that tactic could change under the Biden administration, the research firm notes.
In his fiscal 2022 budget proposal sent to Congress in May, U.S. President Joe Biden called for increasing the top capital gains tax rate from 20% to 39.6% for those with gains of $1 million or more. Factoring in a 3.8% Medicare surtax, high-net-worth investors would pay a top rate of 43.4%.
“Advisors planning for clients who have significant capital gains exposure beyond the million-dollar threshold should consider stringently managing taxable income by realizing gains up to certain levels, if possible, and plan a strategic gifting and/or donation plan,” Horton said in a statement about Cerulli’s findings.
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