Challenges to advising multi-generational wealthy

Paul Hershan

12 September 2007

Up-market may seem like the place to be, but there are obstacles on the way. If RIAs hope to profit from opportunities to win recurring, long-term fees presented to them by aging and increasingly wealthy baby boomers, many of them are going to have to make substantive changes to the way they do business. For some the way ahead is to increase operational efficiencies. For others -- keeping in mind that sound business initiatives are rarely mutually exclusive -- the key is to tap into a niche, perhaps by moving up-market with a view to providing multi-generational wealth-management services.

In 2005, U.S. consumers held $17 trillion in investable assets. By 2010, they could have as much as $30 trillion. Most of this growth is going to boomers, who -- already more numerous and, even on a per capita basis, wealthier than any previous generation -- are stepping into a "perfect storm" of wealth creation as they prepare to roll over retirement-plan assets and sell businesses even as some of them come into substantial inheritances from their Depression-era forbears.

Far more than investments

As a result, RIAs with an eye to their long-term prospects are weighing their chances as upscale wealth consultants to families whose assets exceed the amount an affluent couple bent on maintaining their lifestyle is likely to run through before they die.

Other RIAs may have the "multi-gen" mantle thrust upon them as they scramble to retain clients who suddenly find themselves far wealthier than they had been and, as a result, in need of more than a just investment advice.

And some of these RIAs still won't be able to keep up -- especially when it come to working with junior family members.

"There are firms that just don't have the D.N.A. to understand the younger generations, to have specialized programs in place for them," says Michael Slemmer, a principal of The Collaborative, a Medfield, Mass.-based business consultancy to financial-service firms. "It comes down to communication, going the extra mile to talk to the children of their clients," adds Slemmer. But that's unfamiliar territory to many RIAs, "because they aren't marketers; their focus is investments," adds Slemmer.

RIAs face challenges breaking into this field, the fact is it is challenging for everyone -- in part because family-wealth management bears little similarity to the RIA's traditional focus on investments only.

"The RIA is basically focused on the financial world," says Alois Pirker, a senior analyst with Boston-based research and consulting firm Aite Group. Meanwhile family offices -- the model of choice for most commercial multi-generational wealth managers -- offer a broader range of services that frequently run into far more personal matters.

Prospects know the score

Steve Braverman, managing director of Harris myCFO 's Northeast regional office in Fort Lee, N.J., says that wealthy families are becoming more cognizant of the choices and services available to them. As a result, a wealth manager needs "to demonstrate credibility before a client signs," he says.

In other words, to compete at all as a high-end wealth management firm an RIA has to be far past the "work-in-progress" stage.

At a minimum, RIAs that want to succeed as multi-generational wealth managers must be prepared to: Develop client plans to manage issues associated with large inheritances Determine the most beneficial ways to provide for future generations Utilize client specific tax efficient strategies to transfer wealth Provide up-to-date estate planning services in coordination with legal counsel Advise on business succession strategies Offer a breadth of services that goes far beyond basic investment strategies

Few small RIAs are equipped to handle all of these things. So those that are determined to serve families through more than one generation will have to forge links with outside experts. -FWR

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