This article argues that the younger generation of HNW individuals prizes convenience over chasing after high returns. Advisors need to get creative, and understand more innovative strategies for managing wealth transfer, such as a “directive trust”.  

The younger generation of high net worth people, such as inheritors, are not as focused on achieving the highest level of returns as might have been the case with their ancestors, so surveys and certain arguments state. (Whether that holds true if or when the economy were to go into a recession or some other difficulty remains open to debate.) 

This younger population cohort is the “convenience generation” and wealth managers need to understand that, argues Alvina Lo, chief wealth strategist at Wilmington Trust. Lo says the newer generation wants different things from wealth advisors. 

The editors are pleased to share these ideas and invite readers to respond. The usual editorial disclaimers apply, and readers who want to respond can email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com

Over the next 25 years, nearly $70 trillion is expected to be transferred by aging Baby Boomers to younger generations, according to research firm Cerulli Associates, (1) specifically Generation X (currently ages 38 to 53) and Millennials (ages 22 to 37).

Given this massive tsunami of money in motion, wealth advisors need to rethink how they work with clients and their families. Figuratively for Gen Xers and literally for Millennials, they are unlikely to be happy with their grandparents’ wealth planning approach. Attracting and retaining younger generations will require advisors to revamp how they approach and engage multigenerational families.

To begin to understand what’s at stake for wealth managers, it is important to analyze why clients choose an advisor, and why they leave one. When it comes to choosing an advisor, factors such as the range of product/service offerings and strong investment performance are relatively unimportant, ranking seventh and eighth, respectively, on the list of reasons why clients choose an advisor, according to Cerulli (2). Rather, it is the opinions of people that investors trust most. Referrals from friends, family and existing clients are the factors that top the list, followed by referrals from other professionals, such as accountants.

What about the other side of the coin? Which factors make investors abandon their advisors? It is perhaps surprising that high fees and poor investment performance are not the key drivers, and only rank third and fourth, respectively. The top reason for an exit is the passing away of a client, resulting in his/her beneficiaries leaving. Next on the list is the client having a relationship with another advisor.

What does this data tell us? First and foremost, that quantifiable points such as investment performance and fees are far less significant in attracting and retaining clients than qualitative issues – namely the strength of the relationship between the advisor, the client and the client’s family. These issues are becoming even more important – and more complex – as younger generations emerge as the recipients of Baby Boomer wealth. 

Speaking a different language
As the Baby Boomer wealth transfer accelerates, advisors are going to have to adjust to a client base that is more diverse and possesses different needs than its elders. While 80 per cent of women currently lead or participate in decisions about family wealth transfer, per Cerulli, (3) they are becoming more engaged in investment strategy. Only 9 per cent of Boomer women were involved in investment decisions, while 21 per cent of Gen Xers and 29 per cent of Millennials say they are. Advisors will need to consider the role of ethnicity as well, as 75 per cent of Boomers identify as white, while 62 per cent of Gen Xers and just 56 per cent of Millennials say the same.

While challenges abound, the good news is that relationship-based services are in great demand. More than nine in 10 (93 per cent) high net worth investors think that having an advisor they can trust is important, and 89 per cent of them feel obligated to learn to manage their wealth, according to Navigating the Wealth Transfer Landscape, a survey Wilmington Trust developed with Campden Research and the Institute for Private Investors. (4)

For advisors to remain relevant they will need to manage next-gen clients as members of the “convenience generation.” As consumers, these clients have become accustomed to immediacy and enhanced communications. They seek a modern approach to wealth planning that involves an updated mix of services and products, along with a focused, experiential relationship with their advisors. 

For example, advisors should refine their models to provide value upfront and engage these investors at inflection points, such as marriage, having their first child, buying their first home or receiving a distribution from a trust at a specific age. It’s about connecting with clients wherever they are in their personal journey.

Another key for advisors will be providing education across multiple generations to maintain strong ties with entire families. Knowledge is power, but every family learns differently. Some 59 per cent of investors who plan to inherit wealth prefer customized education from their advisor based on their family’s needs, per Navigating the Wealth Transfer Landscape.