Be prepared for The Great Wealth Transfer

In the coming years, a seismic shift in wealth will occur – with the wheels already beginning to set themselves in motion today.

It’s estimated that in the United States alone, 45 million households will transfer around $68 trillion to their children by 2045.

‘The Great Wealth Transfer’, as many have dubbed this large-scale transition of wealth will be sparked by the passing down of wealth and assets from the Baby Boomer generation onto their Millennial inheritors.

Inheritance occurs all the time, so you could be forgiven for wondering why this period of wealth transfer so significant. Well, as CNBC explains, Baby Boomers are the wealthiest generation in US history.

U.S. News elaborates that the Baby Boomer generation (a name relating to individuals born between 1945 and 1964), were born into an era of post-war prosperity. Following the end of World War II, many returning soldiers were rewarded with the level of financial stability that enabled them to buy new homes and fund higher education – paving the way for successful careers and even more economic security.

The same report shows that around 70% of disposable income in America is still controlled by ‘Boomers. As the Baby Boomer population continues to mature, we find ourselves on the cusp of a major inter-generational financial transition. In a significantly short space of time, wealth will be passed down to the younger generation with contrasting ideas on how to manage their newfound wealth.

The term Millennials typically refers to people born between 1981 and 1996, and this generation of individuals stands to receive a significant amount of wealth in the coming decades. Given the worldwide financial hardships of the early millennium, The Great Wealth Transfer will likely leave Millennials with a huge boost in money that they’re inexperienced in handling.

Such wholesale changes will not only challenge Baby Boomers’ inheritors to make unprecedented decisions with their wealth but also wealth and asset management companies. Today we are witnessing a tide beginning to change, and here’s how to prepare Client Relationship Management systems for the next epoch of wealth management:

Keep knowledgeable, stay transparent

The Great Wealth Transfer will bring brand new challenges for millions of inheritors worldwide. Investopedia claims that in America, 82% of citizens have said that they are either somewhat or not at all confident in their understanding of investing wealth.

These levels of uncertainty will challenge the way that wealth management firms interact with their clientele. It is vital that companies prepare to welcome the business of younger clients who are likely to have a significantly lower understanding of how to manage their wealth.

Mary Ellen Hancock, senior wealth strategist at PNC Wealth Management in New York City explains that “knowledge is power. Clients who are well-educated about potential strategies will have a clear understanding of where they want to go, and decisions become easier to execute.”

It’s important that advisors make themselves clear and concise in their descriptions and explanations while remaining transparent at all times. Given the scale of the wealth transfer we are set to experience, it is fair to anticipate that new clientele will have little-to-no-knowledge of how to manage their wealth – as a result, there will be a greater emphasis on advisors to help drive better financial literacy.

Amy Jamrog, financial advisor for The Jamrog Group elaborates that aiding the development of financial literacy won’t simply consist of “factual conversations, there’s a lot of emotion tied to it.” In the near future, advisors will not only be required to guide such challenging conversations but also provide inheritors with the education and tools that they’ll need in order to build their confidence.

Adapt your approach for new clientele

Now seems like a good time to offer up a warning over complacency when preparing to welcome new millennial clients. According to a recent study from J.D. Power, Millennials are among the most disloyal clients around.

While you could feel confident with your current clientele who you are providing financial advice for many years, be prepared for the requirements of the new generation. According to the market study, of all investors who expressed ‘high satisfaction’ at the quality of the service they receive, 29% of Millennials stated that they would still consider leaving their current full-service advisory firm in the next year – as opposed to just 4% of older generations.

It’s clear that no firm can rest on its laurels when the Great Wealth Transfer gathers momentum. Advisory firms will certainly need to modernise, but J.D. Power found that Millennials still crave regular personal contact with their respective advisors. In fact, nearly a third of affluent (those holding more than $100,000 in investable assets) Millennials stated that they would like more direct contact with their financial advisors, compared to just 7% of older clients.

The reason for such a gulf in attitudes could be down to older investors having already established trust with their advisors, while younger clients may prefer to position themselves much closer to the action in order to develop trust and build more of an understanding over how their wealth is managed.

Find the right Client Relationship Management system

The gap between Baby Boomers and Millennials may only be a matter of decades, but the two generations are lightyears apart when it comes to their behaviour as clients.

Firstly, it’s advisable to take a look at your Client Relationship Management (CRM) system ahead of The Great Wealth Transfer. Fundamentally, while face-to-face human engagement is essential to both advisors and their clients, the communication preferences of Millennials are much more dependent on technology as opposed to meeting rooms and physical paperwork.

Ensure that your company advisors are armed with a CRM setup that actively tracks clients’ communication preferences and enables users to act using multiple points of contact in a way that keeps all parties satisfied.

Furthermore, it’s imperative that advisors utilise the right tools to complement their future client base. With around $68tr set to change hands between now and 2045 in the US alone, it’s fair to say the firms that are fastest to modernise their processes and CRM systems will find their approach paying dividends in years to come.

The process of internal modernisation is likely to hold extra appeal when it comes to recruiting younger, more technology-savvy staff to handle the complex wants and needs of a brand new generation of clients.

Cater to a new set of financial needs

Fundamentally, the biggest preparational measure to take is to adapt your own respective approaches to client acquisition.

It’s vital that financial advisors develop sensitivity to their new clients’ investment priorities, future life goals and digital expectations. Modernisation in the form of fresh smartphone apps, chatbots and social media interaction can help, but will only take firms so far in such an uncertain landscape.

The gulf between the priorities of Baby Boomers and Millennials is such that many firms will require a large-scale rethink in terms of their product portfolios, advisory approaches, business models and marketing plans.

A recent report by Broadridge found that Millennials vary in some significant areas to their predecessors and are notably more risk-averse than their parents. They’re also much more clear-eyed about their goals and can be expected to have a strong idea of what their life ambitions are even at a relatively young age. It was also found that younger people were much more open to a wider range of investment options and would be more willing to consider alternative investment funds, financial technology and non-traditional providers as a result.

The most successful wealth and asset management companies will have taken such variations into account and worked them into a functioning CRM that helps to deliver the varying needs of younger investors.

Millennials may have found themselves gaining a reputation as a collective of meme digesting, social media addicts, but beneath these labels is a generation of individuals with complex aspirations and dreams that have been punctuated by the economic downturn of the late 2000s.

Soon this group of heavily caricatured individuals will be on the receiving end of a massive volume of inheritance – the likes of which is unprecedented in the world of finance – and it will be the task of wealth and asset management firms to ensure that they’re well-positioned to build towards leaving an even greater wealth transfer for future generations.