The Great Wealth Transfer: What does this mean for the Financial Advisor?
According to an article from The Washington Post, an average of 10,000 Baby Boomers have retired every day since 2011. In 10 years (2030), all Baby Boomers will have reached retirement age.
Another article from CNBC says Baby Boomers own over 53% of U.S. wealth. Experts say that this translates to a $68 trillion transfer of wealth from boomers to their heirs by 2030.
What does this mean for Financial Advisors?
“It’s a big risk for many advisory firms and a big opportunity for others,” said Gauthier Vincent, lead wealth management partner at Deloitte Consulting.
As Baby Boomers retire and begin to execute their estate planning, their beneficiaries will need financial advice. The catch is - this doesn’t mean the current advisors of the asset holders will also be passed on to their beneficiaries. In other words, the heirs of Boomers will likely seek financial advice elsewhere.
This Great Wealth Transfer will pass to Generation X and Millennials. These younger generations will seek financial advice from new advisors that they trust.
“I predict that half of financial advisors will be gone in the next 10 to 15 years.”
-Ric Edelman Founder of Edelman Financial Engines
What can you do about this?
Appeal to the younger generation through Digital Optimization
Be Proactive With Relationships
Understand your new Target Audience
Optimize your business to appeal to the younger generation. It is no secret that Generation X and after are more technologically apt than Baby Boomers.
According to RobustWealth one of the best methods to prepare for The Great Wealth transfer would be to optimize digitally.
Appeal to the Younger Generation through Digital Optimization
Chuck Failla, owner of Sovereign Financial Group, has planned his New York-based RIA to survive the coming wealth transfer. He claims that inevitably “100% of our book of business will turn over...we’ve taken steps to make sure the firm is in good stead in 20 to 30 years.”
Sovereign Financial Group has created a business model “capable of running on lower fees.” Failla also says that they have developed a digital experience for clients.
It is not news that we shift more towards the digital space every year. The younger generations want to connect, share content and conduct business online.
According to RobustWealth, a few steps for Digital optimization could include:
Use online questionnaires to understand your client’s goals with specifics including dates etc.
Create a segmented Value Ladder where you can customize client experiences based on their needs.
Use data to analyze which clients need more one on one hand-holding during market uncertainty.
Use Blogs and Email sequences to keep current clients educated about the current market and other topics.
Automate back office tasks so you can focus on building relationships with clients.
You can connect with children of clients and any new clients through Social Media. From here you can use drip Email campaigns to begin a relationship with them.
Be Proactive About Relationships Now
If you are a current advisor for someone who will be retiring soon, it would be wise to create a relationship with the beneficiary of their plan. The first step would be to figure out if your current client’s family is aware of your relationship with them.
Hold family meetings. You can use estate planning or charitable gift giving to segue into these conversations. Meeting with the family will show that your intentions are for the long run.
Referring to the Value Ladder, you can create tears of your service so that you can manage meeting length and frequency.
Promote events so your younger clients can network with your experienced clients.
Understand Your New Target Audience
The generation on the receiving end of the wealth is a younger generation, and it’s important to understand your new target audience. Many Millennials and even Gen Xers are still in student debt. The younger clients will have different expectations from Financial Advisors.
CNBC posted a study claiming that “Millennials and Gen X need different advisor approaches.”
According to CNBC, here are a few differences between the two:
Millennials (born 1981 - 1996)
Biggest common financial challenges include student loans, living independently, and purchasing a home.
87% expect Financial Advisors to protect them against market instability.
Not aggressive with investments. Prefer consvervative investing/ saving.
Concerned primarily with social responsibilities and activism.
Technologically apt and prefer updates through mobile phone apps/ notifications. However they do want financial advice from a professional.
Generation X (born 1965 - 1980)
Experienced the 2008 recession and housing bubble.
In peak earning years. 76% want general financial education from their financial advisor.
Willing to accept more risk and focus more on money-making over social responsibility.
Many support themselves, parents, and children. Most will seek advice on retirement plans.
Most use technology and will use fintech. However most will value human professionals over tech.
90% use smartphones and 80% are on social media. Are willing to use social media, in-person meetings/ gatherings, and email to gain trust.
Bottom Line
Baby Boomers hold more than half of the wealth in The United States. They will be transferring that wealth to their heirs in the next few years.
The impending events can come with huge consequences for the financial services industry. You can be proactive by creating relationships and digitally optimizing your business as soon as possible.
