Banks & Financial Advisors Planning for $30 Trillion Challenge

Get ready to welcome the largest international wealth transfer in history.

We’re soon going to see the largest intergenerational wealth transfer in history and most financial advisors aren’t ready. Their top priority, if they want to attract the next generation, needs to be figuring out ways to connect with millennials who are digital natives.

Over the next 40 years, $30 trillion of wealth will move from baby boomers to their heirs, and two-thirds of children will ditch their parents' advisors after collecting their inheritances. That means banks and asset managers need to consider how they can ensure a seamless intergenerational wealth transfer where they hold on to these new clients.

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Gauthier Vincent, head of Deloitte's U.S. wealth management practice told CNBC, “Studies regularly show that when wealth passes to another generation, in the majority of cases, the heirs change financial advisors. The relationship between assets, asset owners and financial advisors is unraveling before our eyes.” However, amid the disruption, some firms will emerge as winners with new clientele.

A report by Roubini ThoughtLab, Wealth and Asset Management 2022: The Path to Digital Leadership, says, “With the industry facing high-velocity change, investment providers must act now to embrace digital innovation. Firms that have already reached an advanced digital stage report an 8.6% increase in revenue, an 11.3% rise in productivity, and a 6.3% improvement in market share. Those that move too slowly stand to lose $79 million per billion dollars of revenue a year — and risk falling out of the race altogether.”

The companies that want to grow will have to change how they operate, because millennials behave differently from their parents. For example, in the next five years, more millennials than boomers (by a ratio of 59% to 46%) will use an alternative investment firm and 53% of millennials intend to use a fintech to manage their wealth compared to just 23% of boomers.

Roubini ThoughtLab says that appealing to millennials will require firms to embrace cloud-based technologies, and expand their business relationships with fintech startups. They should also partner with third-parties to improve their services and to build a digital ecosystem of services surrounding the financial advice they now offer to clients. Additionally, it’s crucial that cybersecurity around customer data is airtight, the report notes.

Experts say advisors who want to connect with the next generation should do so sooner rather than later. One way to appeal to millennials is by offering ancillary services that use the latest digital capabilities to solve problems they might not even be aware of. For example, more than $60 billion of assets are unclaimed or misplaced in the United States and Canada — one person out of every 10 in the United States owns unclaimed funds. A great deal of that wealth may be lost because vital documents are stored, and misplaced, in an overstuffed filing cabinet. Keeping track of those financial assets by offering clients access to a secure, cloud-based digital storage vault is one service that could help.

That repository could also safeguard legacy documents that set out family goals, dreams, visions and a mission statement. State Street Advisors says financial firms should encourage clients to consider how they want to demonstrate to each other, and future generations, their goals and intentions for their wealth. In its report Roadmap for a New Landscape: Managing the Transition of Wealth Across Generations, the asset manager says documents could include, “a personal letter to each family member reflecting on why specific properties or charities have special meaning; an evergreen document outlining ‘dreams,’ ‘visions,’ and ‘goals’ for the older generation’s legacy; or a more traditional ‘mission statement’ developed after a family meeting.”

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