Fintech Corner (8/3/21)

$70 Trillion Is About to Change Hands: Is Your Technology Ready?


Over the next 25 years, 45 million U.S. households will transfer nearly $70 trillion worth of wealth, according to Cerulli Associates, but many financial advisors lack the tools and soft skills to manage the rising generations of clients.

That’s because a very large cultural shift has occurred between generations, said Adrian Johnstone, chief commercial officer of Practifi, a business management platform for financial advisors.

“The generation inheriting wealth and/or taking over control in the decision-making process is more informed, more connected and has more independent resources available to them than previous generations” said Johnstone. “The new audience advisors needs to engage with is vastly different than the Baby Boomer audience they needed to engage with to build that wealth.”

Yet most advisors remain Baby Boomers themselves, said Johnstone, and feel a natural affinity for people of their own age. Younger generations who will receive this wealth are not as well represented in the advisor community, and the traditional financial industry is not as well connected or entrenched among younger Americans. As a result, advisors often do not speak the same language or communicate across the same channels as younger generations, said Johnstone.

Advisors can’t afford to wait to learn more about this next generation, said Johnstone, and shouldn’t assume that this wealth transfer is somewhere off in the future—the reality is that it is already in flight. For each individual, family or company, the circumstances of the transfer will be different.

“There’s this question of control because generations are living longer, but there is still the question of when they should seek to pass control of their assets on to the next generation” said Johnstone. “There are plenty of families around the globe who don’t want to wait until someone is incapacitated or deceased for their assets to transfer. For many of these families, the assets will move at the peak of their ability to give and move the assets.”

That’s where technology can help, said Johnstone, because advisors don’t necessarily know when these transfers will occur. Advisors have to be prepared for the transfer to happen for each client at a different time, in different circumstances and with different triggers.

They can’t wait for the last minute to offer their services to the next generation after their clients have passed because one way or another, wealth will be transferred, said Johnstone. Advisors have to become relevant to next-generation clients before the transfer happens.

“Advisors have to understand when this next generation might take assets, but they should ideally already be working with the assets this generation has now,” said Johnstone. “That means that advisors need to decide whether they are prepared to work with family members who might not meet their standards for minimum investible assets, and they should do this because if they’re looking at the bigger picture and thinking longer term.”

It also means that advisors have to learn, understand, and track the same details about younger, next-generation clients that they keep for their traditional clients and build the same level of trust and rapport.

Those details have to be connected to digital communications, but not just to serve younger clients. The pandemic pushed Baby Boomers onto Zoom and mobile devices in droves and providing services through those channels now has cross-generational appeal.

“Advisors need to understand that this generation may have an entirely different appetite for what they want to invest in,” said Johnstone. “An advisor looking down the barrel of this might say that there is no way any of my clients are interested in cryptocurrencies and therefore I don’t need to be—but that means that anyone who may have money deeply invested in cryptocurrencies and other asset classes that might come along will not choose you as an advisor.”

Advisors will also have to deal with generations of self-learners who like to do their own research. Client service for younger generations may move advisors towards more of a validation role.

While the technical skillset of an advisor will remain important, it is their abilities as teachers and communicators that will warm younger clients to their services.

“Advisors don’t need as much of a mastery of fundamental knowledge anymore, that now comes from the internet,” said Johnstone. “The connections that advisors now need to make is encouraging clients to self-educate and become deeply informed, but also for the client to come to them as the final point of consensus.”

That means advisors have to better engage with younger generations, said Johnstone, because they can’t talk to people they don’t know.

“They need to be looking at data about these next-generation clients who are likely to inherit the wealth, and that starts by knowing as much about your clients’ household and family as possible,” he said. “Are they engaged in things that are life-event significant for them? Where are they going to inherit money from? Is there an opportunity to reach out to them and say, ‘Hey, you’re about to have your first child, here are the things you should do.’ These might be messages and things you would never say to their parents, but it’s information and content that is relevant to those younger generations.”

Great relationships come before great technology, said Johnstone, but the most important technology to make this happen is the CRM, particularly a CRM that can do complex householding and relate households, families, and companies together to visualize the relationships their clients are experiencing.

Then, advisors need to think about new ways to capture client data. While the traditional discovery session will never go away, younger generations are eager to engage in different ways and are often willing to share valuable information about themselves via technology. Advisors may have to create regular technological touchpoints with these clients through messaging and other forms of digital media.

“Advisors need to understand they are going from a traditional come-to-the-office model to a 24-7 information cycle,” said Johnstone. “They need to deliver on an experience that is where the client wants it, at the time that they need it, rather than what may be more convenient to the advisor. They’ll have to proactively feed this relevant information in a way that clients can engage and inform themselves, because that’s what newer generations want.”