Wealth managers must use tech for next generation

New research has revealed that after inheriting, 28 per cent of high net worth (HNW) clients’ children discontinue the relationship with their parents’ wealth manager, with many moving the money to digital challengers.

Much like the moves being made by UK High Street banks to hold onto younger customers tempted away by mobile-only players in the new Open Banking environment, asset managers may have to update their propositions to survive the Baby Boomer intergenerational wealth transfer.

GlobalData’s latest report found that 38 per cent of the global HNW population is above the age of 60, which equates to 4.3 million individuals.

Results from the analysis firm’s 2018 Global Wealth Managers Survey showed that involving the next generation during the estate planning process is the single most effective retention tool – however, only 59 per cent of wealth managers across the globe offer inheritance planning services directly.

Heike van den Hoevel, senior wealth analyst for GlobalData, commented: “Reaching out to the next generation early on is critical, but wealth managers are not doing a good job.

“Of course, discussing one’s mortality is a subject many would rather avoid, but if providers fail to ensure the continuation of the relationship with successors, this will amount to a significant chunk of their current business being lost.”

Ian McKenna, director at the Finance & Technology Research Centre, responded to the research by stating that this is by far the lowest figure he has seen for inheriting beneficiaries changing adviser, adding that 90 per cent is more typical.

“In my experience a growing number of wealth managers internationally see the challenge of retaining assets on generational transfer as their number one business risk, although this is perhaps less recognised in the UK,” he explained.

“If 90 per cent of your customers are going to leave as money passes to the next generation what is that going to do to the value of an investment firm? Conversely a firm that has secured relationships with the next generation of consumers should have much greater value because of the longevity of relationships.”

McKenna cited the multi-generational cash flow and estate planning system built by Edmund Walters at Apprise Lab in partnership with Envestnet, as a leading edge example of what wealth managers should be doing.

Research last year from Crealogix, among 1,200 adults, found that 68 per cent of Millennials - aged between 22 and 29 - were receptive to automated investment management, compared to only 40 per cent of those aged between 46 and 52.

Crealogix’s recent digital wealth management guide stated that Millennials are set to inherit more than $30 trillion from their Baby Boomer parents, but will not necessarily stick with the same fund managers – favouring whichever firm can give them access across multiple channels and devices, with clear pricing and easy communication.

Asset and investment managers, as well as the financial adviser middlemen, have all been looking at ways to court younger investors as a longer-term play, via more intuitive websites, money management tools and integration with existing accounts.

Opal Group chief executive Eoin Lyons pointed out that the dramatic expansion of the middle class in the 1960s and 70s means that Generation X will become ‘generation inherit’ in due course.

“Our parents will have been advised face to face by people they trusted with their finances, but their children have been digitised and expect service to be real time and remote,” he said. “Advisers need to engage with this group in the channels they want to use or their custom will walk out the door with their newly acquired assets.”

Lyons suggested engaging client’s children earlier and digitally. “For example, using tax efficient gifting in areas such as protection insurance – forget about long face to face advice meetings, get on to email and webchat and self-serve technology.”

Paul Yates, product strategy director at financial software solutions provider iPipeline, explained that in the UK, a lot of wealth advisers have been highly focussed on the growth of assets as their key business performance measure.

“But when your ‘new business’ starts to tail off and your assets under management begin to decline as clients age, you need to focus on retention,” he stated. “Having the right products and services to help with an orderly inter-generational transfer is crucial, along with building engagement and trust with the next generation.”

Steve Andrews, head of managed services at financial software consultancy Focus Solutions, agreed that wealth transfer poses a significant risk for all financial services providers, from wealth managers and advisers to platforms, banks and insurers.

“The modern consumer is different, the way we buy goods and services has changed forever and will continue to evolve at an ever increasing pace, so traditional financial services provider needs to react and quickly.

“The growth of FinTech challengers and how they are approaching the delivery of their services is something existing providers need to recognise and look closely at how they should be evolving their current business models to meet the changing demands of the consumer,” he added.

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