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Unprepared Advisors Stand to Collectively Lose Trillions in AUM in Wealth Transfer

Post on: October 16, 2019 | Ryan Gunn | 0


Advisors could be in trouble. Over the next 25 years, baby boomers are expected to pass $68 trillion on to their children in the largest generational wealth transfer in history. Any advisor who has not considered what will happen to their AUM when those assets transfer could be in for a rude awakening. Analysts estimate that anywhere from 66% to 95% of children fire their parents’ financial advisor after they receive an inheritance.

Luckily, there is still time for advisors to prepare for this financial upheaval by learning to connect with their clients’ children and the broader millennial generation.

Meet with the heirs

There are many reasons an inheritance would be removed from an advisor’s management, including children spending the assets too quickly and the inheritance being split between too many parties. However, according to an Investment News survey of 544 advisors, the biggest obstacle to retaining assets is a lack of relationship with their clients’ children.

Investment News suggests that 72% of advisors meet with their client’s children less than once a year or not at all. In a separate survey from MFS Investment Management, 75% of the 1,000+ investors surveyed said that their children had never met with their financial advisor. Speaking from personal experience, I am a millennial who has never met with my parents’ financial advisor. I have my own investment accounts managed outside of my parents’ chosen firm.

According to the Investment News survey, advisors listed two of their top three business risks as “difficulty attracting new clients” and “generational wealth transfer.” Forging a relationship with client’s children has the potential to mitigate both of those risks.

If advisors can convince clients to include their children in financial conversations, including meetings with their financial advisor, then firms may be better equipped to retain their clients assets. And as an added benefit, the children may be better equipped to handle and maintain a large influx of wealth since they were provided with a better financial education.

Cater to generational preferences

Millennials are the generation that grew up with the internet. Instead of taxis, they use Uber. Instead of radio, they listen to podcasts. And when it comes to investing, self-service apps like Acorns and Robinhood are cropping up to in the place of traditional investment management.

That’s not to say advisors are in danger of becoming obsolete. Surprisingly, millennials still prefer human interactions over digital ones. But, as robo-advisors begin to take over day-to-day portfolio management, advisors may shift to servicing larger investment accounts and unique asset offerings, with their personal touch and focus on client preferences touted as amenities.

While the financial industry as a whole is rather quick to adapt to the digital age, not all segments of the industry are equally modernized. Financial planning in particular is notoriously slow at implementing new technologies. There are many reasons for this slow adoption: strict compliance regulations, cybersecurity concerns, high costs and more. But the proof is in the pudding. Advisors who have adopted new technology systems experience faster growth than non-adopters.

Deloitte’s 2019 Investment Management Outlook report predicts that 2019 will be the year that tech-savvy firms will put pressure on traditional firms, and those who don’t jump on the technology train will be left behind. The report states that the two highest priorities for firms in 2019 should be creating operational efficiencies and delivering an elevated customer experience.

That may mean conducting meetings over Skype or a similar video chat service, but it also means adopting a stack of technology tools that allow you to provide a better (though maybe more remote) client experience. Advisors will, at minimum, need an online presence to keep up in a modern market. This means using web services, social media, and mobile apps to make the client experience more interactive and inclusive. However, advisors that want to make the most of what technology has to offer can utilize technology solutions for portfolio management, financial planning, and customer relationship management, the three pillars that traditionally comprise an advisory technology stack.

Advisors who cater to high net worth investors will also want to consider a solution for straight through processing for alternative investments, what WealthForge considers “the fourth pillar.” Millennial investors have significantly higher interest in alternatives. As of Q1 2018, millennial investors had 13% of their assets allocated to alternatives, compared to a mere 4% of Boomer’s investments. If advisors want to attract wealthy millennial investors, being able to offer alternatives and provide a tech-enabled investment experience will be a step in the right direction.

By meeting with client’s children, forging a relationship, and understanding their generation’s preferences, advisors will be better equipped to hold on to their hard-earned AUM once assets transfer from one generation to the next. While advisors need to begin to cater to millennials, current boomer clients still need to be served, so advisors may have to go through a period where they operate under multiple models to serve successive generations.


In the face of emerging threats to the advisor industry,
technology and alternatives can offer a competitive advantage.


Disclaimer: WealthForge provides this information for educational purposes only. It should not be construed or relied upon as legal or tax advice.

About author

Ryan Gunn

Ryan leads content creation at WealthForge. He earned his bachelors from Virginia Tech and MBA from the College of William & Mary. His writings on fintech, alternative investments, and advisory best practices have been featured in Real Assets Advisor, Alternative Investments Quarterly, Equities, and other industry publications.
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