It’s a familiar song: You’ve been working with someone for years, maybe decades, helping them build their financial life. Then they die, and their widow decides to cut ties with you. Their children have taken more of an interest in the family finances perhaps, and they want somebody else, somebody younger who knows more about, say, crypto.
That’s just one of the scenarios laid out by analysts from Cerulli Associates who spoke in a virtual conference earlier today. The Cerulli team says that developing meaningful relationships with entire families is going to become increasingly important to advisors working in the high-net-worth space. You can’t just go to a young heir a few months before they come into their money, which the Cerulli team said would seem like a disingenuous ploy at the very least.
“Our data shows that 70% of children end up firing their advisor once the primary wealth holder passes away,” said Asher Cheses, a Cerulli associate director.
The virtual presentation was titled “The U.S. High-Net-Worth Marketplace: Shifting Wealth Dynamics and Service Models.” The firm says $84.5 trillion is going to change hands from now until 2045. Some $72.6 trillion of that is going to heirs, while the rest goes to charities. More than $53 trillion will be coming from baby boomer households. And a whopping 42%, or $35.8 trillion, is coming from the wealthy: high-net-worth or ultra-high-net-worth households. (Cerulli defines high-net-worth households as those with $5 million or more in investable assets.)
And those wealthy houses represent only 1.5% of all households. So the space for advisors is likely going to get cramped.
“As of 2021 we estimate that there were just under two million [high-net-worth] households throughout the United States,” said Chayce Horton, a research analyst on the wealth management team at Cerulli. “The top 1.5% of households now control nearly 50% of all the investable assets in the United States, which is a figure that has accelerated in the most recent stimulatory environment and has essentially doubled since the 2008 financial crisis.”
The market volatility this year has likely blunted those numbers, but not by much, he said.
The high-net-worth wealth management market grew to $14.8 trillion at year end 2020, he said, and it’s increased at an annualized rate of more than 11% since 2015. The two largest channels serving this market are wirehouses (such as Morgan Stanley, Merrill Lynch, Wells Fargo and UBS), and the private banking channel (including firms such as J.P. Morgan, Bank of America and Goldman Sachs). “Together, these two channels control over $7 trillion in AUM as of year-end 2020,” Horton said, “but have not been able to keep pace with the overall high-net-worth wealth management channel in the past five years. In fact as of 2020, these two channels now control less than 50% of the overall high-net-worth space, which is down from about 55% just five years ago.”
Advisors’ move to more independent channels has helped this shift along, Horton said. Independent and hybrid RIAs as well as multifamily offices have all increased their share of the high-net-worth market. Tech and consolidation have made these other channels more competitive too. The Vanguards and Fidelities have taken a bigger bite too, and they are adding ultra-high-net-worth services, too, said Horton. “They’ve brought on thousands of financial planners and are figuring out how to segment their offerings in their various units and business models.”
Generation X households are expected to inherit $30 trillion in wealth over the next 25 years, said Horton, and this cohort, in their prime earning years, will likely become the wealthiest generation in the 2030s. Millennials are not far behind, he said, though the $28 trillion they will come into will not come for more than a decade, he said.