The Great Wealth Transfer: Are Financial Advisors Prepared?

We've all heard about it. We know it's coming: the Great Wealth Transfer. Baby Boomers control approximately sixty percent of American wealth, and as they pass on, that wealth will get passed along to their heirs. It will be the greatest intergenerational wealth transfer in history. But what are advisors to make of this shift, and what are they to do about it?

According to Cerrulli, over $80 trillion of inherited wealth will pass to Boomers’ heirs over the next 25 years, with about 40% of the entire Boomer asset base held by high-net-worth (HNW) and ultra-high-net-worth (UHNW) households. Approximately $9 trillion of this generational wealth transfer will happen during the 2020s for Generation X, and by 2030, millennials will be five times richer than they are today. Despite being poorer than their parents were at an equivalent stage in life, millennials will end up being the richest generation ever.

Let's pause there. A lot has been written about what advisors must do to prepare for this Baby Boomer wealth transfer, but most of it misses the forest for the trees. Look again at the dynamics of this shift in wealth and ask yourself: If the American wealth landscape is going to change dramatically over the next few decades, can the wealth management industry continue doing business as usual?

We believe that as the wealth landscape shifts, the Great Wealth Transfer creates a strategic challenge for the entire advisory industry. And it's more than just the tactical challenge of managing a generational transfer of wealth from Boomers to their heirs intact. HNW/UHNW firms need to rethink their strategic goals from the ground up: What will these types of firms look like in order to serve a new generation of wealthy investors and thrive many decades into the future?

The answer, I believe, goes deeper than a firm's service model or investment offering. It goes right to the heart of a firm's identity: who you are and how you communicate that to the market.

A new generation of investors will likely be looking for very different kinds of advisory firms compared to those that served their parents, and if you cannot communicate an identity that resonates with this new generation, you can be as successful as possible in getting your clients' wealth transferred to their heirs, but that money will likely end up being managed by someone else. Studies suggest that as many as 80% of heirs will look to switch financial advisors once the inheritance is complete.

Your identity is more than your offering.

There is a lot of advice out there on how to adapt their practices to the demands of the Great Wealth Transfer, and a lot of it is good advice. But I think it's absolutely critical that advisors go further and ask: What happens next? Should our identity and brand message stay the same even as our practice model and offering evolve?

Consider this key piece of advice about preparing for the Great Wealth Transfer: advisory firms need to build better relationships with clients’ family members. Again, according to Cerrulli, only 60% of practices have a relationship with the client's spouse, and only 45% have a relationship with children. Further, spouses (mainly women) will be the first stop on the wealth transfer journey and will control $30 trillion of Boomer wealth when the principal clients pass on. All of that argues for advisors to build deep family relationships with spouses and, more than that, intergenerational family relationships.

Here is another consideration: We can see family offices are implementing significant changes to align with the values and risk appetite of the next generation. Why? Data suggests that millennials don't trust stocks and want to be more impactful than their parents when it comes to investing. At the same time, millennial investors express a high level of aspiration when it comes to what they want to invest in; they want their investments to represent their personal values. However, a TIAA survey reported that only 11% of millennials display a "high" level of financial literacy.

So how do you bridge the gap between great wealth, a lack of knowledge, and high aspirations?

First, it turns out that aspirations often do not match actual life choices. Consider that Netflix originally programmed its recommendation algorithm based on what subscribers put on their watchlist. But Netflix soon found that while people may fill their lists with documentaries, what they really sat down to watch on a Friday night might be rom-coms or action movies.

So, it may make sense for the offering of an intergenerational wealth firm to include a wide range of choices to account for millennials' aspirations as well as their actual investment choices. It also makes sense to include deep educational resources to help improve their decision-making ability. But again, are these just offerings? Or does this educational partnership approach become part of your firm's identity and the brand your firm projects out into the market?

Let’s not forget. What about your firm's succession plan?

At a fundamental level, the entire theme of the Great Wealth Transfer is one of "continuity." So, if you cannot address the continuity issue at your firm, you are giving newly wealthy clients little reason to stay.

You need to be able to communicate clearly, convincingly, and transparently your firm's continuity plans, as well as your intention to be around for decades to help wealthy families manage the continuity of their wealth. And once you can do that, why just make it the last slide in your PowerPoint presentation? Why not derive real value from that positioning and make it a core part of your identity as a firm?

The opportunity for a brand renaissance.

The Great Wealth Transfer and the consequential shifts we will see in the landscape of American wealth offer a prime opportunity to rethink an advisory firm's identity, recharge its retention strategy, and relaunch its brand.

Now, I understand that may sound daunting, or perhaps even like a distraction, to the leadership at some advisory firms. Growth pressures often lead firms to delay big strategic projects, and sometimes growth is a higher priority than client retention. Referrals have been the bread-and-butter growth strategy for most advisors for their entire careers, rather than brand perception and comprehensive marketing programs.

But the world that most of today's advisors grew up in—the world they were successful in—isn't going to be around much longer. Wealth transfer is driving rapid changes in demographics and habits; competition from fintech and other non-advisory providers is growing; and advisors are aging as the industry consolidates. Advisors' most successful growth strategy—referrals—has no inherent message of continuity or retention that can appeal to multi-generational families or newly wealthy millennials.

This kind of sea change requires more than just tweaking a firm's offering or service model. It requires rethinking one's identity and communicating that identity through a consistent brand and marketing strategy.

Just who will you be in this new world of wealth?

Branding is all about storytelling, and advisors need to be able to communicate their firm's identity in a convincing, compelling story. In closing, ponder this data point and what it implies for newly wealthy millennials: 70% of generational wealth doesn't make it past the second generation, and 90% doesn't make it past the third generation.

Effective brand storytelling is about heroes and villains, challenges, and triumphs. Maybe the draining away of family wealth is the villain of your brand story. Perhaps you are a champion who helps your client (the hero) vanquish this villain to begin building dynastic wealth. Or, you may have other brand stories you can tell about familial bonds, building multi-generational knowledge and expertise, or family legacy and aspirations.

Embracing the Future: Reimagining identity, brand, and marketing in wealth management.

While the challenges posed by the Boomer Wealth Transfer are shared by all advisors, each firm has an opportunity to embrace and grow in this new market in its own unique way. But doing that requires, first and foremost, understanding that this is not just a tactical challenge that concerns your investment offering and service model.

The industry faces a deep strategic challenge and an opportunity: the landscape of American wealth is being remade as we speak. To achieve your highest potential levels of success, your identity, brand, and marketing likely all need to evolve along with them.