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It’s a grim day for everyone.  Your client has just died.  And not just any client, the one who has been heavily invested in the firm since the ‘50s – that’s the nineteen fifties!

Grieving family members, whom you have had little to no contact with, are now knocking down your door wanting to know “What next?”, “Where is everything?”

You may or may not know the answers;  hopefully you do.

It’s just another day in the office, albeit a highly unpleasant one.

One of your most valuable accounts is gone for good.  But did it have to be so?

money casket - croppedFor estate planning professionals (wealth management advisors, lawyers and accountants) that’s part of the nature of the business.  While the client is alive, estate plans can be drawn up, but then the inevitable comes.  For the family of the client this can be a messy and costly exercise – monetarily in relation to professional people involved in winding up and administrating the estate – in addition to the emotional strain.  There are almost invariably problems of locating assets, determining liabilities (including taxation ones), gaining access to accounts.   And then there is the potential of legal disputes.

An effective estate plan can mitigate this.  But even when the estate plan is activated, where is the professional (be they lawyer, wealth management advisor or accountant) left at the end of the process?  And what is the cost of the loss of a client?

For an institution with many clients, the expected loss of a client from death can be reflected in the customer lifetime value (“CLV”) of the client.  A typical pattern by age of the client is reflected in the chart below.
clv - standard(In this example, CLV peaks to around $70,000 for a client whose assets under management peak at around $4 million.)

As well as changes in wealth by age and other changes in activities, CLV by age can reflect the probability of client attrition and client death.  CLV increases in the early years as wealth is accumulated, activities increase, expected future expenditure increases.  And in later years, CLV declines as wealth is drawn-down, activities decrease and expected future lifetime decreases.

However, for an individual client, it’s not simply a matter of expectations or probabilities.   The client isn’t going to die next year with, say, a 4.7% probability.  The client will either be alive, or not.  And when the client does die, that’s it.  The CLV over time for an individual client who dies will behave as follows.
clv - with deathDeath of a client can result in the sudden loss of the CLV to the professional or institution.  However, through an inter-generational retention strategy the risk of the loss can be mitigated and in fact the CLV can be enhanced.

Where an effective inter-generational retention strategy is implemented, the CLV over time may behave as follows for an individual client.
clv - individual with beneficiary Here CLV behaves as before until the death of the client, but upon death and retention of the next generation of the client, CLV can be enhanced.  The value after death and successful successor client retention is higher as the next generation is now at an earlier stage in life than the parent.  Expectations are now for further wealth accumulation.

For the institution implementing such a strategy, there is less concern over the individual client, but rather the portfolio and the expected outcome for the average client.  The impact of implementing an effective inter-generational retention strategy can be as illustrated below.
clv - institution with beneficiaryCLV for the institution is increased as the expected “lifetime” of the client now no longer considers just the lifetime of individuals, but rather their successors and inheritors too.

The question then is what comprises a successful inter-generational retention strategy.  The strategy could be simply to provide the best possible service to the successors upon death of the client.  But this is likely to be too little and certainly too late.  Better strategies will include some (or all) of the following elements:

  • Development of lasting and meaningful relationships, not just with the client but with the whole family. That is, becoming their most trusted advisor.
  • Having the processes for succession defined before the client dies.
  • And ensuring the estate plan is 100% complete to avoid the complications of all the hassles and cost in trying to wind up the estate – plus any potential legal disputes.

Do this and your clients and their successors will thank and love you – for each of their respective wealth will have increased.    No less importantly, you will have given your client peace of mind that “things are in order” and knowing that they have forestalled any legal issues (with the estate being frittered away in professional and legal charges) after they have passed away.

And your shareholders won’t be too unhappy either!