Wealth managers, with good reason, have paid a great deal of attention to the inheritances that baby boomers are receiving from their parents. After all, an estimated $12 trillion is expected to change hands.
But a much larger sum—about $30 trillion—will be passed down by boomers to their children over the next 30 or so years. This massive transfer of wealth, which is beginning to accelerate, is a defining moment for the wealth management industry. Now is the time to plan your strategy for capturing the management of these assets.
What makes this transfer difficult to manage, aside from its sheer scale, is that firms can not rely solely on their current advisors to handle it. The average age of U.S. advisors is just over 49. Many are nearing retirement and don’t have the motivation to build relationships with their clients’ children.
Capturing the heirs and earning their long-term loyalty—even though many of these prospective clients are not yet considered desirable—will be crucial for firms as they navigate this transfer. Advisors can succeed in capturing boomers’ assets by setting themselves apart from the crowd.
Most wealth management firms, however, appear unprepared for this large-scale shift of assets. Many struggle to effectively manage the estate execution process on even a one-off basis. According to Cerulli Associates, a mere 6% of households use estate planning services with their primary advisor, and the chief cause of attrition is the distribution of assets to heirs upon a client’s death.
Wealth management firms face a two-part challenge: retaining the loyalty and the assets of boomers, while also developing a value proposition that is relevant to the next generation of inheritors.
Today, client strategies are much the same as they were years ago. Offerings are still customized by asset tiers. The assumption still seems to be that clients will “graduate” to new value propositions as they accumulate wealth.
But the next generation has different attitudes toward investing because they expect transparency and control; they readily share information with peers through a variety of social media forums; and they are not tied to traditional sources of investment advice or service.
By the time they inherit assets, they likely will have selected their own wealth management options and will pull those assets away from their parents’ chosen providers.
Seizing The Opportunity
To successfully capture and retain assets during the coming intergenerational wealth transfer, firms should develop end-to-end strategies rather than disconnected solutions. There are three key things they must do:
1. Build capabilities to enable family estate planning at scale. Family estate planning is critical during the wealth transfer period and in attracting and retaining clients. The more a firm knows about boomers’ and their heirs’ plans, the more it can do to proactively retain their assets.
While the primary focus of customer relationship management systems is to support a firm’s proposal process and improve the depth of its current relationships, some of the same information can be leveraged to increase client engagement on topics related to estate planning. Firms can use predictive modeling to identify highly valuable families and to detect assets with high attrition risk. This is common practice within private banking and ultra-high-net-worth family offices, but is not well executed across the mass affluent, affluent or even the high-net-worth tiers.
Family estate planning offers an opportunity to work with both generations to prepare them for the wealth transfer—something that should be a high priority. By engaging in a holistic portfolio management conversation and providing valuable advice, advisors create the opportunity to build relationships and remain the brand of choice.
Since workforce licensing requirements influence who can offer estate planning advice and how firms incorporate estate planning into their offerings, firms will have to increase their teaming capabilities and firmwide referral programs to encourage collaboration. Improving planning tools and client data solutions is a start, but putting the operating model and business process elements in place is just as important and, in some cases, the harder piece to get right.
2. Establish strategies to catch heirs. Dissatisfaction with provider relationships is the main reason investors leave, according to research by Phoenix Marketing International and Cerulli Associates. Only half of wealth management clients in the 30-49 age group, which stands to inherit from the boomers, are satisfied with their primary wealth provider.
To strengthen the relationships with boomers’ heirs, firms should consider ideas such as creating collective allocation models that enable managing self-directed assets alongside managed assets, bundling products around life stages and expanding the product set to include cash management, debt management and insurance.
Firms should also step up efforts to hire younger advisors since there is a strong correlation between the ages of advisors and their clients. Getting the right talent on board and ensuring they are trained and compensated appropriately is key.
Typically, investors in their 30s will not have much in the way of financial assets for several years. But to capture the boomers’ heirs, firms will first need to deepen relationships with them as early as possible. Firms that do this within their higher-cost, full-service models might have to sacrifice short-term profitability for long-term gains. On the other hand, firms that use low-cost direct models need to consider how to meet heirs’ changing needs as they come into more wealth.
3. Help clients navigate their inheritances. According to a Canadian study, 39% of Canadians whose parents have a will have not reviewed it with their parents, and 61% of those whose parents are deceased never discussed the will before their parents passed away. By supporting the heirs during the difficult experience of a death in the family and making the process less stressful, firms can solidify existing relationships or establish new ones with the heirs.
Firms should enable their advisors to execute on the transfer with operational excellence, and reward them, even when the assets move to other service models. Firms may consider establishing client-facing operational groups that specialize in the transfer process and client support.
The richness of client interactions can be improved when firms invest in mobility capabilities that increase client convenience. The experience should be a high-touch, branded and personalized service that “wows” the clients, generates trust and makes them want to continue a relationship with the firm.
Adapt Your Business Model
The looming boomer wealth transfer will force wealth management firms to make difficult decisions about how to build a business model for long-term success. With the wide array of models available, including traditional banks, private banks and direct and full-service brokers, firms should decide how they can differentiate themselves in a converging market. Many firms will cater to both sides of the wealth transfer—boomers and heirs. However, to be successful, they must clearly define their strategies for each of these groups.
Firms can start this process by assessing their current relationships with boomers and their heirs. Those with a strong base with the boomers can leverage those relationships to connect with the heirs. These firms may choose a retention strategy to hold onto boomers’ assets as they are transferred by optimizing the firm’s wealth management capabilities.
On the other hand, firms that already have relationships with the heirs can circumvent the boomer relationship and focus instead on serving their core client base. These firms will view the transfer as an opportunity to take over inheritor clients and their newly acquired assets by creating a “catching” strategy to attract prospective clients—especially those not satisfied with their current wealth provider—who stand to inherit wealth.
Still other firms may choose alternative strategies, such as a combination of both “retention” and “catching” through launching new brands across different offerings or acquiring complementary competitors.
No matter which course a wealth management firm pursues, its chances of success will increase if it starts to plan now. In today’s rapidly changing marketplace, firms with a coherent strategy and supporting capabilities can build a significant competitive advantage over those that are scrambling to define themselves.
Kendra Thompson is the wealth and asset management services lead at Accenture Management Consulting in Canada. The following Accenture executives contributed to this article: Karime Abdel-Hay, Alistair Clark, Patrick Heath, Gregory Mak and Riley Nelko.