No issue looms larger for the financial advice industry than demographics and the aging of the baby boomers.
Over the next several decades, the biggest and wealthiest generation in U.S. history will transfer roughly $30 trillion in assets to their Gen X and millennial children, and if studies are accurate, most of those children will promptly fire their parents’ advisors. At the peak, between 2031 and 2045, 10 percent of total wealth in the United States will be changing hands every five years. Capitalizing on these intergenerational shifts in wealth will be critical for the long-term success of wealth management firms.
“Studies regularly show that when wealth passes to another generation, in the majority of cases, the heirs change financial advisors,” said Gauthier Vincent, head of Deloitte’s U.S. Wealth Management practice. “The relationship between assets, asset owners and financial advisors is unraveling before our eyes.”
This tidal wave is approaching like a tsunami sitting hundreds of miles offshore. You know it’s out there but many in the financial industry have not taken sufficient steps yet to weather this storm. Understandably, most are focused on generating revenue now and servicing higher net worth clients like the baby boomers. The financial advisory sector has already seen significant disruption from the fintech startups dominating the “robo advisory” space. Companies like Betterment, Wise Banyan, and LearnVest have been targeting the GenX and Millenials who were traditionally avoided by the more established advisory companies.
“Indeed, firms in all corners of the industry — from banks and wire-house brokerages to asset managers and even insurance companies — have seen the light. They are either building out digital-advice platforms, as Charles Schwab and Vanguard have done, buying them like BlackRock and Northwest Mutual Insurance did, or partnering with online advisors, as UBS recently did with SigFig. The RIAs, most of whom can’t make the investments, are accessing the fintech tools through custodians such as Schwab, Fidelity and TD Ameritrade.”
Those companies that don’t embrace fintech technology to attract the next generation of clients will likely fall behind and not survive as the last of the baby boomer clients pass away. Finding innovative ways to stay ahead of this generation wealth transfer will be paramount to succeeding. Creating engagement and value for the adult heirs of the baby boomers is critical to keeping them as clients. I do think the best way for large and often slow moving financial service firms to accomplish this is to actively work with fintech companies who are far more effective adapting to the consumer needs and putting products in the marketplace.
Tools that allow the parent and adult children to interact via an online or mobile application where the heirs see the value of what the advisor is providing to the family. For example, DocuVital stores critical documents and information that the children will need when wrapping up the affairs of their parents. White labeled or co-branded solutions will insure the advisors stay in the mind of the consumer when they are using the products.
Inaction and indecisiveness by the financial advisory sector will surely cause significant damage and some companies will not survive if they fail to proactively mitigate the wealth transfer issue.