Kendra Thompson has a message for advisors: You may have gotten comfortable with your boomer clients, but get ready for some big changes when their children inherit the wealth.
Thompson, a consultant in Accenture's Wealth and Asset Management practice, authored a report titled The 'Greater' Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth. She estimates that between 2031 and 2045, 10% of U.S. wealth will change hands every five years, as baby boomers' assets shift to their children. Thompson's report puts the value of that exchange at a whopping $30 trillion.
Although the greatest impact of that transfer is still several years down the road, Thompson recommends that advisors begin to discuss wealth transfer plans with boomer clients immediately. That's not only a fiduciary best practice, but it can also ensure that assets remain with the advisor after the transfer takes place. For younger advisors in particular, it's crucial to identify Generation X clients and learn how their expectations may differ from those of their boomer parents.
Thompson says the attitude changes are already visible. Because younger generations are more comfortable using technology and assimilating various information sources to direct their own investments, advisors' value propositions have to change.
"That doesn't mean [this generation] doesn't expect advice, or that they don't value advice," she explains. "But the way we justify [the advice] needs to make sense to that group of people. Don't take it for granted that just because you have a business card or an office you can visit that they should be taking advice from you."
She says advisors should understand that younger clients are more open to virtual sources of information. Embracing that intergenerational shift, rather than fighting it, would behoove the industry.
Ramesh Gulati is chief investment officer at Gulati Asset Management, which has offices in Providence, R.I., and Vero Beach, Fla. His observations bear out Thompson's findings about the changing attitudes among Generation X investors.
He believes the cycle of extreme booms and busts in the housing and equity markets over the past 15 years, coupled with a spate of financial-industry scandals, scared much of the under-50 demographic away from the market. However, Gulati says there are ways to chip away at their resistance.
"I find that if you just deal with the parents, when they die and pass the money on, you may lose that client because you don't have a relationship with the children. You want to do multigenerational financial planning, so when that money passes to the next generation, it doesn't leave you. It's better to include the children so they know you, trust you, are comfortable with you, and first and foremost, they know you aren't taking advantage of their widowed mother or father," he says.
Jeanie Wyatt, CEO and chief investment officer at South Texas Money Management, with offices in San Antonio, Houston, Austin and Dallas, also sees a growing role for multigenerational planning. "It will make our business more complex, but also more successful, if we are able to incorporate and include the next generation or generations," she says. "In more cases than not, our clients like that. There's always a demand for privacy that you absolutely have to respect, but there's a keen desire for their heirs to be educated and informed so that they are prepared to carry the ball with those assets in the future."
In Durham, N.C., financial advisor Jennifer Lazarus tends to attract a younger clientele to her practice. She does not manage assets, but specializes in directing clients toward socially responsible investments. Most of her clients are in their 30s and 40s. That age group is not just focused on far-off retirement goals; they also want to be deliberate in how they employ financial resources in the present.