Wealth managers may miss out on major revenue opportunities to serve a new breed of ultra-high net worth clients and retirees who are decumulating their assets, according to Boston Consulting Group’s latest global wealth report.

The US has nearly 21,000 individuals whose total financial wealth exceeds $100 million, an increase of over 15 per cent over 2019, according to the BCG report, published last week. More than 7,000 people will enter the UHNW bracket in the next five years, the consulting firm estimates, bringing the total wealth of that segment to nearly $8 trillion.

Services that "ultras" want from wealth managers are evolving, according to the report. Offerings that seemed leading edge a few years ago, such as impact investments and exposure to alternative asset classes, can look stale today. Service must be “highly differentiated to suit client needs, and omni-channel access and rich digital functionality have become standard features,” the report said.

A younger, Next Gen demographic, who today are between age 20 and 50, and will accumulate massive wealth from inheritance or liquidity events over the next 10 to 15 years, will be key to the future growth of the UHNW market, it said.

This group of ultras, according to BCG, have “longer investment horizons, a greater appetite for risk, and often a desire to use their wealth to create positive societal impact as well as solid returns.”

What Next Gen ‘ultras’ want
Next Gens are comfortable with navigating many elements of wealth management independently, and are not inclined to pay high fees for activities which they believe they can do well enough on their own, such as stock picking.

What they do want, the report said, are “exclusive opportunities, specialized lending, and investment expertise, services and capabilities they can access only through a wealth manager.”

Examples include high-value alternative investments, deal opportunities, private placements, and bespoke credit. For example, an entrepreneur might receive a starter loan collateralized against his or her parent’s equity holdings.

When working with younger ultras, wealth managers should avoid treating them all the same and not keeping their key advisors and gatekeepers in the loop. Not having continuous engagement with these clients and assuming that they will stay with a firm just because their parents did are also big mistakes.

Wealth managers should strive to create individualized solutions for these UHNW clients, the report urged. If a client is interested in ESG, for example, a relationship manager might construct a proposition based on a specific dimension that the client cares most about. Growth targets can be tied to solutions, with client satisfaction as a leading measure.

Wealth managers should also invest in digital platforms and apps to digitally support human interactions across channels at critical moments, BCG recommends.

Clients should have digital enablers such as an at-a-glance view of their global portfolios and interactive modeling. In Asia, for example, clients often interact with advisors through WhatsApp and WeChat. Mobile apps can also enable self-serve and direct chat. And responsive design ensures that information is easy for clients to access and read. 

Digital decumulation model
Even though retirement assets make up around 12 per cent of total financial assets in the US, decumulation often marks the denouement of the client–wealth manager relationship. Too often, advisors wind down their interaction with clients in their middle and late retirement stages, leaving many retirees asset-rich and advice-poor at a time when their needs are most complex.

Individuals in the affluent and lower-end high net worth segments with between $250,000 and $5 million in wealth are especially affected by the advisory gap in the decumulation phase. 

The heretofore high costs of serving retirement needs, complexity and a traditional emphasis on accumulation have made advisors reluctant to work closely with clients in a decumulation stage who aren’t ultra-wealthy.

But an advisor-led, digitally-enabled decumulation model can change the way in which firms view working with retirees, the BCG report stated.

Wealth advisors should consider setting up next-stage meetings with decumulating clients to understand their concerns, and communicate priorities for subsequent stages of retirement.

Advisors can aggregate accounts and then feed them into a client analytics engine. Using an all-in-one dashboard on a tablet, advisors can give clients an overview of their asset portfolio and walk them through potential decumulation scenarios. 

The digital backbone underlying this model addresses key pain points for advisors - making it easy for them to update information and support clients in this large demographic in a sustainable, scalable fashion.

Decumulation opportunities
Revisiting plans at least once a year allows financial advisors to help clients rebalance their portfolios and adjust decumulation rates accordingly. Advisors can also serve as a life coach, suggesting ways in which clients can invest their time as well as their money.

Wealth managers also have a compelling “whitespace” opportunity to work closely with employer-sponsored retirement plans. For example, they and plan sponsors can identify ways to engage directly with individuals in the middle stages of their working lives by providing onsite financial education classes or by hosting community events, enabling advisors to establish trusted relationships that go beyond financial management.

Wealth managers should revise their decumulation “scorecards,” the report concluded.

Traditionally, advisors have operated on the assumption that spending more time in front of clients leads to more revenues and better scorecards. As a result, they have been predisposed to invest more heavily in relationships during the accumulation stage than during decumulation.

To overcome this structural bias, wealth managers must change their incentive schemes, the report counseled, moving away from quantitative metrics such as assets, revenues and profits, and instead focusing on client satisfaction for those in the decumulation phase.