The next great wave of wealth transfer in the United States has already begun.
More than $30 trillion in assets held by the baby boomer generation will shift to the next generation over the next 30 years, according to research firm Cerulli Associates.
For many financial advisors, this wave represents a business-building opportunity. For others, it could imply an impending loss of assets. Many investors do not keep the same financial professional when navigating life changes, such as a death in the family. A recent study found only 45% of investors retain their advisor when a spouse dies. When the second spouse dies and children inherit, only 2% will retain the same financial professional.*
As assets move to the next generation of heirs, advisors may capture and retain this business if they position themselves with a broad offering of expertise.
Boomers hold more than half of the nation’s total mutual fund assets. In addition, high-net-worth clients work with an average of more than four financial services providers. There is a significant opportunity for advisors who make connections with the family and future heirs of clients.
Many of the obstacles to retention involve positioning. Some advisors do not encourage clients to get their spouse involved in wealth-related discussions, or they fail to connect with the next generation. Often, the focus may be on preparing assets for transfer to heirs instead of preparing heirs to receive those assets. A study last year found that only 3% of clients said their advisor asked to meet their children and only 17% reported that their adult children work with their primary advisor.*
In addition, advisors need to address non-investment issues such as wealth transfer and family dynamics with clients. Connecting with the next generation may seem to offer a lower value due to time constraints and working with adult children with smaller accounts. But these may be issues only in the near term. To connect with the next generation more efficiently, advisors may consider embracing technology, which is typically more critical to the next generation and may mitigate any geographic barriers to the relationship.
*Sources: “Engaging and Retaining Families, Investment Management Consultants Association, 2011; Pershing, 2014
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