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Advisors, Asset Managers Must Plan Now for Next-Gen Investors

Managing a Practice

With significant wealth transfers forecast in the coming years, decisions that asset managers and financial advisors make now will impact their ability to retain and attract the assets that younger investors will inherit, a new report suggests. 

According to the Cerulli Edge—U.S. Advisor Edition, 2Q 2022 Issue, $72.6 trillion in wealth is projected to be passed on to heirs and younger generations through 2045. 

In total, Gen X stands to inherit the greatest portion of these assets, including nearly $9 trillion in the next 10 years, and totaling $29.6 trillion over the next 25 years. What’s more, Cerulli anticipates that households in this generation will receive up to $1.5 trillion annually by the mid-2030s. Cerulli also anticipates that Millennial households will not be far behind in terms of overall transfers. Despite receiving only $5 trillion in the next decade, these households are expected to inherit greater than $27 trillion by 2045 and will surpass Gen X in annual receipts before 2040.  

And while firms are developing products and tailoring existing strategies to reduce fees and appeal to a broader audience, such as increasing aptitude with digital assets and ESG thematic investing, only 42% of advisor practices offer intergenerational planning, the report notes.

Advisors hoping to connect with the beneficiaries of wealth transfer must incorporate intergenerational planning and address numerous operational challenges, Cerulli advises. 

Intergenerational Planning

Evolving service and business models to meet the needs of the next generation is no small task, the report notes. According to the firm’s research, over a quarter of advisors (26%) identify building multigenerational relationships as one of their greatest practice challenges. 

“Advisors are frequently so focused on the daily operational aspects and pressing investment or advice needs, they are unable to properly develop strategy related to developing relationships with the next generation,” says Andrew Blake, senior analyst at Cerulli. 

Independent RIAs may improve output by hiring dedicated specialists, including an operations manager, CIO-like function and planners, freeing up time for advisors to focus on asset retention strategy planning, Cerulli suggests. 

Asset retention with the next generation in the face of advisor retirement is a key initiative for several firms, the report observes. According to the firm’s research, advisors over the age of 55 manage 47% of the industry’s assets and a quarter of those retiring within the next 10 years do not have a succession plan in place. 

This succession planning challenge is even more pressing in the independent channels where advisors are less likely to have firm-wide services available to assist with transitions and are older, on average, than their counterparts in other channels. Cerulli suggests that bringing in junior advisors to help serve as main points of contact with younger stakeholders while learning the business from more senior advisors can be effective strategy. 

“Advisors meeting with the children of current clients to articulate the plan behind these transitions will increase their potential to secure relationships into the next generation,” the report emphasizes. 

Value-Add and Technology

Advisors must also evaluate their existing technology infrastructure to remain attractive to young investors, according to the report. Cerulli observes that the ability to manage and upgrade technology capabilities stands to play an “influential role” in determining whether an advisor is effective in appealing to younger investors. In fact, advisors most commonly identify new client acquisition (52%), compliance (40%) and managing technology (30%) as their practice’s primary challenges.

As such, preparing for the generational shift could be an opportunity for asset managers to add value to advisors. “Asset managers can play a role in educating advisors on how to best service investors through thought leadership and value-add tools,” adds Blake. Moreover, asset managers are working to develop new products and restructure current offerings to meet the demands of younger investors.  

To that end, clients are seeking to work with companies that make it easier for them to navigate accounts, access interactive digital content and receive customer service through readily available artificial intelligence interactions. 

Ultimately, both asset and wealth managers will need to adjust their service models to safely transition intergenerational assets. “A comprehensive, cohesive digital strategy beyond a collection of software or online content is needed from both,” says Blake. “Integrating digital offerings to help drive investor outcomes will help asset managers and advisors win assets from a younger and more technology-focused generation of investors.”