A massive transfer of wealth from the baby boomers to their heirs will occur over the next 30-40 years, and unless advisors begin preparing for this shift, they risk losing 90% of their assets, a new report suggests.
The report by global consulting firm Accenture plc, entitled The “Greater” Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth, suggests that the transfer of wealth from baby boomers to their heirs will be substantially larger than the more imminent transfer of wealth to the baby boomers from their parents.
Accenture estimates that baby boomers in North America will inherit US$12 trillion from their parents in the years to come. In comparison, the subsequent transfer of wealth from boomers to their heirs will involve more than US$30 trillion in financial and non-financial assets.
“It’s definitely unprecedented,” said Wayne Busch, Toronto-based managing director of financial services in Canada for Accenture.
With statistics showing that 90% of heirs move their assets to a different financial advisor upon receiving an inheritance, advisors have cause to be concerned about this looming transfer of wealth, Busch said in an interview. However, he believes advisors aren’t doing enough to prepare.
“I think they’re not as prepared as they need to be,” he said. Although it’s important for advisors to focus on expanding their assets, Busch said, they also need to be thinking about how to maintain their assets once the wealth transfer begins.
“They are focused on maintaining 5% or 10% type growth rates with their existing client base, and yet they might be experiencing a 90% loss at the back end of that in terms of their clients and their portfolios,” he said. “There hasn’t been a focus yet on the coming demographics, and the changes that are going to be required to support that next generation of clients.”
To prepare for the shift, the Accenture report suggests that advisors and firms begin incorporating family estate planning into the wealth management process. Involving the heirs in this process can present an opportunity to learn more about them and their plans for the future, and to establish relationships with them.
To attract the heirs as clients, Accenture urges advisors to cater their wealth management offerings to this younger demographic. For instance, he suggests they expand the wealth management process to include cash management, debt management and insurance. Also, he recommends that they embrace technology, and be as transparent as possible about the wealth management process.
“[Younger people] are looking for a much different advisor experience,” said Busch. “They’re looking for high quality advice, but they’re also looking for more transparency in terms of how their assets are managed. And they’re looking for more digital solutions.”
Partnering with a younger advisor can also help to attract heirs as clients, as there tends to be a strong correlation between the ages of advisors and their clients, the report says.
“Most people want to work with people who are in their generation, who understand their needs,” Busch said.
Since younger investors typically have fewer financial assets, advisors who court their clients’ heirs might have to sacrifice profitability in the short term, the report notes. The long-term gains, however, are likely to be substantial.
“Capturing the heirs and earning their long-term loyalty – even though many of these prospective clients are not yet in what are seen as desirable client segments – is going to be crucial for firms as they navigate this transfer,” the report says. “Firms that focus on deliberate strategies and effectively implement their plans will be in the position to capture a huge base of assets.”