How should wealth managers be preparing for the upcoming intergenerational wealth transfer?

by 
Kathryn O'Brien

We are amidst the greatest intergenerational wealth transfer ever known and wealth managers need to take note if they want to retain assets.

More than £400 billion in wealth from Britain’s Bank of Grandparents is expected to be passed through to the younger generations in the coming years - navigating this transition will be critical. At present, 86% of heirs do not stay with their parent’s advisors. There is a great opportunity for wealth managers who can retain assets through this transfer if they are willing and able to adapt. For this to happen, there needs to be an understanding of the differing expectations and requirements for the next generation of clients.

Asset managers need to prepare well in advance for these changes. Relationships can take years to build so reaching out to younger family members cannot be a last-minute call. Yet at present, only 20% of advisors are targeting younger family members of their clients. Advisors need to take interest in the wider family from the offset. It is important that they involve heirs in the discussion by inviting them to client meetings and initiating a conversation about future plans. Learning the fundamental principles of managing wealth early will make for a much smoother transition when wealth is inevitably handed over to them.

Conversations also need to be had with current clients – encourage them to think about long term goals for their family. It is important to show clients that you care about the future of their children. Ensure that planning is centred around life affirming themes to create a more meaningful conversation and relationship.  To form relationships with potentially sceptical heirs, illustrating that you are reliable and that you fully understand their needs is essential.

Another critical factor to consider is that generation X and millennials are tech savvy and expect a different user experience than their parents did. They have become accustomed to instant search results and access to on-demand advice and have similar expectations when it comes to wealth management.  This generation has incorporated technology into almost every aspect of their lives, including banking and financial services, so if wealth management wishes to stay relevant to this client group their digital functionality must evolve.

However, clients still want a personal experience and to be treated as induvials. They expect transparency with more personal, more real-time and more effortless interactions. They feel a disenchantment about paying fees for financial advice and as such are more sceptical about their advisors and whether their interests are truly aligned with their own.  Wealth management need to focus on making clients feel valued and giving clear and transparent advice so they feel in control of their finances.

This generation are also a different breed of investors who prefer to be in the driver’s seat when it comes to investment decisions. They are more active and hands on with their wealth and want to use their entrepreneurial skills to be involved in the process from end to end. They want access to more interesting investment opportunities in direct equity, impact investing, private debt and real estate. To engage with this group, advisors should consider expanding their offerings in their private asset proposition. This will help wealth managers to differentiate themselves and stand out in the market.  

As the industry quickly approaches the transfer of wealth to the next generation, all of these considerations will be important for wealth managers. Intergenerational wealth transfer has the potential to be a great opportunity for those firms who can adapt and engage the heirs of their clients and is potentially detrimental for those who do not.