Written by Tyson Ray, FORM Wealth Advisors | CFP®, CExP®, CIMA®
The much-discussed “Great Wealth Transfer” is here. Almost one-third of Americans have or will be receiving an inheritance, and nearly half expect it to come within the next 10 years.
According to Cerulli, trillions of dollars will change hands from the older Silent Generation and aging Baby Boomers to their young Gen X, Millennial and Gen Z adult children and grandchildren over the next 20 years. Cerulli says the transfer will come mostly from Boomers and will total almosty $84 trillion, with about $72 trillion going to heirs and $12 trillion going to charities. The wealth being transferred will include cash, equities, real estate and other forms of wealth.
With this sudden acquisition of large sums of money comes an important question for many heirs: “Will I work with my parents’ advisor to manage this newfound wealth?”
The answer depends on several factors. If you have already begun working with your parents’ advisor — attending meetings and getting involved with your parents’ finances — it can make sense to continue working with that advisor. Doing so can provide continuity and stability to your planning process, especially if one or both of your parents has passed away.
If you have never worked with a financial advisor, I strongly urge you to find a compatible advisor as soon as possible. If you aren’t sure you want to work with your parents’ advisor, I recommend that you interview that advisor, along with others, to find one who is a good fit for you. Take notes as you interview advisors. Afterward, compare all the factors and narrow down your list of potential advisors, based on the criteria that are most important to you.
The most important step to take — whether or not you inherit money, and whether or not you work with your parents’ advisor — is to work with a financial advisor. You want to build a long-term professional relationship with an experienced, competent advisory team, preferably, who will partner with you to design a customized financial plan that will guide you toward financial confidence today and into the future. Your advisors will help you navigate life transitions, both the expected and the unexpected ones, and adjust your plan as needed. They will help you understand the do’s and don’ts of inheriting money.
Here are five tips for selecting a financial advisor who will partner with you in growing, protecting and preserving your wealth.
1. Check each advisor’s FINRA and SEC status
First, check the advisor’s regulatory status with FINRA, the Financial Industry Regulatory Authority. FINRA is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets.
Using FINRA’s BrokerCheck tool, you can locate if an advisor is registered with FINRA; review the list of brokers whom FINRA has barred; use the SEC Action Lookup tool for formal actions the SEC has brought against individuals, including those who are not brokers; and check your state securities regulator website to do additional research on brokers and investment advisors.
All registered representatives are required to have a (BrokerCheck) access portal on their websites. This portal will take you to the appropriate regulator to do a background check among other information provided about the advisor.
2. Look for a fiduciary planner
Investment Advisor Representatives (IARs) fall under the category of fiduciary planners; they have a fiduciary duty to their clients. This means they are obligated to provide investment advice that is always in their clients’ best interests. Don’t settle for any less than this — it’s the “gold standard” of financial planning.
So, how can you know if an advisor is a fiduciary? One way to know is to simply ask the question. Another way to know if an advisor is a fiduciary is to look for the CERTIFIED FINANCIAL PLANNER® (CFP®) designation. Advisors like me who have this designation undergo extensive training, and we are required to commit to the CFP Board’s ethical standards, which require us to put our clients’ interests first (i.e., to be fiduciaries).
3. Find out how qualified each planner is to address your situation
When you interview advisors, tell them the general nature of your situation and your goals. Ask each advisor to describe the type of experience and credentials he or she has in that specific area. Ask all the advisors to describe, in general, how they might approach a specific situation — for example, managing the tax consequences of inheriting money.
This should give you a good idea of how each advisor might work with you to help optimize your situation. Ask a lot of questions.
In tip #2 above, I mentioned designations. The world of finance is full of credentials; there are more than 200 professional designations in the financial services profession. The designations that advisors have typically indicate their areas of expertise and focus.
In addition to the CFP® designation, I also hold the CExP® (Certified Exit Planner®) designation, which indicates my specialized training in exit planning — guiding business owners in transferring ownership to another business or to one or more individuals.
In addition, I have the CIMA® (Certified Investment Management Analyst®) designation, which is considered a high-level credential. It indicates that the financial advisor has both a proven track record of ethical conduct and significant accomplishment in investment consulting, with expertise in investments, risk assessment and portfolio management for clients.
Such designations make it easy to tell, at a glance, where an advisor’s expertise lies. For example, if you are navigating a divorce when you are expecting to inherit money, you might want to consider seeking out a Certified Divorce Financial Analyst® (CDFA®). He or she can help you understand the financial aspects of divorce, how to divide assets in the most tax-efficient manner and build a strong financial plan to meet your short and long-term cash-flow needs focused on your personal life goals.
4. Gauge your comfort level with each advisor
In addition to evaluating several advisors’ experience, expertise and credentials, it’s also important for you to listen to your intuition to determine how well you might work with an advisor. As you interview and assess each one, ask them to explain anything you don’t understand, and gauge how patient they are with you. Do they seem condescending when you ask a question, or are they helpful and respectful?
You will be sharing your dreams, goals and concerns with the advisor you choose, so it’s important to select one who puts you at ease and makes you feel comfortable sharing sensitive information about your financial situation. The client–advisor relationship is built on mutual trust. If you don’t trust your advisor, you probably will not feel comfortable disclosing any of this information, in which case the advisor will be unlikely to help you to the fullest extent possible.
5. Look for a planner who is backed by a team
Because the financial world is complex, you don’t want to rely on just one advisor for all your financial guidance. I recommend that you choose an advisor who is backed by a team — either in his or her physical office or virtually — whose specialties encompass the vast complexities of your financial situation. Having more specialists working on your behalf can help eliminate errors and uncover opportunities in far greater detail than you could hope for with a single advisor. You will benefit from their various perspectives and experience. Also, teams help ensure seamless service if one advisor is unavailable because of travel, vacation time, workload or illness.
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If you receive an inheritance, we want to help you access it easily, manage tax implications and invest it wisely. In our experience, it can sometimes take months to track down assets and divide them among an estate’s heirs. In some cases, heirs incur significant legal fees — particularly if the estate was large or if the owner of the estate died without a will.
If you inherit a tax-deferred retirement plan, such as a traditional IRA, you will have to pay taxes on that money. Spouses can roll the money into their own IRAs and postpone distributions — and taxes — until they’re 73. The rules and timelines differ depending on your relationship to the deceased. For example, if you inherit a retirement plan from a parent or sibling, you must follow different guidelines. The rules for inherited retirement plans are complicated and tend to change often, so I encourage you to work with an advisory team who will review the tax requirements carefully. Also, be aware that there are different rules for different heirs: Spouses, for example, enjoy some tax breaks and exemptions that aren’t available for adult children or other heirs.
We will guide you in optimizing your inheritance so you and your family can get the most enjoyment out of it now and in the future.
