According to CNBC and other sources, a “Great Wealth Transfer” is now underway. It involves baby boomers passing along their life savings to their Gen X and millennial children. Experts estimate that about $30 trillion in assets will be transferred in this way over the next few decades.
One would think that with such a golden opportunity right in front of them, wealth management firms’ advisors would be well prepared to capitalize on it.
But industry surveys surprisingly show that this doesn’t seem to be the case. In one study by WealthManagement.com, for example, only 21% of the advisors polled said they are interested in working with their clients’ children.
More industry research underscores just how big a mistake this can be for advisors. Data from InvestmentNews, for instance, shows that 66% of children fire their parents’ financial advisor after they receive an inheritance. That means two out of every three deceased clients’ inherited assets walk out the door.
These statistics, coupled with the fact that client rosters at many wealth management practices are heavily skewed toward the upper age brackets, should serve as a wake-up call for advisors. Advisors and financial planners should be retooling and refocusing at least parts of their practices so they’ll be more appealing to these younger investors. This is especially true for the millennial crowd, with their preference for conducting business in mobile, social and always connected ways.
Advisors who see the millennial segment’s potential and plan to pursue it need to go about it differently than they would with other parts of their practices. Mohamed El-Erian, Chief Economic Advisor at Allianz, summed it up nicely at a recent conference when he described millennials as being more accustomed to a “self-directed life.” Given this strong trait among millennials, advisors should take a new tack with them. Instead of selling products, advisors should first work on building up trust in their relationships. After that trust is established, advisors and financial planners should package their services in ways that give millennial clients more self-serving involvement and control.
One thing is certain about this massive transfer of wealth – it will dramatically reshape the business landscape in the wealth management industry.
As Andy Dufresne said in The Shawshank Redemption, “It comes down to a simple choice, really. Get busy living or get busy dying.” That’s the basic decision advisors need to make when it comes to adding younger investors to their client lists.
