Protect clients by getting to know the children

Clients can grant children financial powers, but generally fail to talk to them about their financial objectives and needs.

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Establishing a working relationship with your clients’ children is often in the clients’ best interest as they move into their retirement years.
Many retired clients designate their adult children as their successor trustees or give them power of attorney over their investments.
When this happens, in the event of any incapacity, the adviser must answer to the directives of the children.
Although clients often grant their children important financial powers, they generally fail to talk to them about their financial objectives and needs. This puts the clients at risk because the children may not understand what mom and dad think is important or what your role is as their parents’ financial adviser.
Here is a five step process to help establish a working relationship with your clients’ adult children:
Identify the legal issues. It is important to explain to your clients that if they named their children as successor trustees or given them a financial power of attorney, their children would have the legal right to direct their investments in the event of any incapacity. Once this is explained, clients generally see the need to educate their children about their financial goals and to introduce you to them.
Make the first move. Often, for various reasons, clients find it difficult to engage in these discussions with their kids. An easy way to broach the topic is for you (with your clients’ support) to send a letter of introduction to the children. The letter would explain your role as their parent’s financial adviser, and explain that the children may at some point be asked to act on their parents’ behalf.
It is important to let the children know that you have spent a great deal of time developing an investment plan for their parents, and that their parents support the ongoing implementation of the plan in the event of their disability. Knowing that there is a plan in place will help alleviate fears the children might have about the possibility of being responsible for overseeing their parent’s financial affairs.
If you have helped your clients to secure long-term-care or other insurance policies, it is prudent to inform the children that these resources are also available to care for their parents.
Communicate consistently. Clients generally work with advisers because they have a great deal of trust in them and share a common philosophy about financial management. But the children may not know much about you as an adviser. To help build a relationship with the children, you should consider adding the children to your client communications or newsletter list. This will provide the children with an opportunity to obtain your insights about personal finance and will reinforce your role as a trusted adviser.
Virtual family meetings. Once every few years, it helps to have a joint meeting with the parents and their children. If everyone lives in the same city, it is nice to have an in-person meeting. But today, many kids live in different states, and it is not possible to get everyone together at one time. So, just like you would schedule a virtual meeting with business associates, it helps to put together a virtual meeting among the parents, their children and you. Depending on your familiarity with technology, the meeting can be structured online or as a simple conference call supplemented with electronic reports.
Offer to help. While many of your client’s children may not have the financial assets to meet your minimum investment requirements, you can offer to treat the family as one relationship and provide investment advice to the children on smaller accounts.
Sometimes, it is as simple as helping the children with a 401(k) allocation at a new job, guidance on college savings or managing a small individual retirement account. It is likely that they will greatly appreciate your efforts, which can help you build a foundation for working independently with them.
By making a consistent effort to develop a working relationship with your clients’ adult children, you are helping to protect your clients in the event of their incapacity. The more the children know about their parents’ objectives and your role as their adviser, the more likely their parents’ financial plans will be carried out.

Charles J. Farrell, J.D., LL.M., is an investment adviser with Northstar Investment Advisors LLC in Denver.

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