Although financial markets continue to hit record highs, uncertainty looms as we head into 2021. What changes will the new administration enact and how quickly? What new regulations may be enforced? What will happen with trade wars and interest rates? How many people will lose their jobs and businesses? How will people approach their finances in the short term and rethink their financial plans? From a macro and micro level, there are many unknowns for financial advisors to factor into their advice and interactions with clients. However, uncertainty is not new for financial advisors and firms. Many storms have been weathered in the past, and with uncertainty comes opportunity.
As advisors and firms leverage behavioral finance elements with current clients, two areas with high growth potential for client acquisitions are intergenerational wealth transfer and the financial needs of women. While obviously not new, firms and advisors have not yet succeeded broadly with these niches.
Targeting The Next Generation Of Heirs
Everyone knows the numbers surrounding intergenerational wealth transfer are huge. Estimates of $68 trillion will move within generations over the next 25 years. Research suggests a staggering 80% of heirs will move their money upon inheritance. Most firms and advisors know the opportunity, as well as the large threat. However, beyond private banks and family offices, there are not systematic and sustainable ways in place to engage and retain the younger generations poised to inherit that money. It’s spotty at best. How can this opportunity be seized?
First, analyses should be conducted on books of business to ensure data accuracy. For example, all known children, grandchildren, nieces, nephews, etc. should be entered in a consolidated CRM. At a firm level, predictive analyses can be applied to prioritize segments of clients and advisors with the most wealth transfer at stake. Then comes the harder part: having conversations with clients and their potential heirs.
The next generation may not have (will likely not have) the same values and beliefs about money, investing and planning as their elders. Impact/ESG investing may be more important to them than current clients. They may likely not want to engage in the same ways. How much communication do they want; how and when do they want to meet in person, even if by videoconference? This is where behavioral segmentation, data and analytics, values discussion guides, new product education, and methodical practice management systems are critical to success.
One firm that applied predictive analysis across advisors’ books of business found an alarming 35% of assets under management was at risk for potentially leaving the firm due to transfer of wealth over the next 10 years. When the impact is synthesized at a macro level, the threat—and opportunity—becomes very real. To protect yourself from this situation, first analyze your books of business for potential outflows. Next, design detailed guides on how to approach the client and next-gen conversations. It is also crucial to upskill on new products like ESG, along with effective engagement techniques. Equally important, embed repeatable and sustainable processes in your practice management routines and technologies. The goal is to identify immediate areas for retention and growth, but also to implement sustainable changes for continued growth.
Women Are Projected To Control The Majority Of Wealth In The U.S.
Moving to another area with enormous growth potential: “80% of women—versus 60% of men—want advice, but only one-third have an advisor,” according to Kristin Lemkau, CEO, U.S. Wealth Management, JP Morgan Chase. When firms and advisors are constantly searching for ways to attract new clients, why is such a gaping demand for advice going unmet? Firms know that women tend to invest differently than men—with a keener focus on values-based investing and long-term goal planning. A trusted relationship with an advisor and firm is also important.
For several years, the industry has been shifting from transaction/broker-based models to financial planning models. Most advisors and firms claim to be “client-centric” and know what is important to clients to align investments. So, why the disconnect? Why aren’t more women getting the advice they are seeking?
Research shows there are pervasive unbiased and biased processes and behaviors that create barriers to establishing trusted relationships between women and a firm/advisor. A study conducted by Merrill that included eye tracking, heat mapping, lexical and ethnographic analysis, one-on-one interviews, focus groups, online surveys, and observations of real meetings between advisors and clients, exposed many stereotypes and biases.
Women frequently stated they encountered negative gender assumptions (miscues) from their advisor, such as: 1) the man is the decision maker in the relationship, 2) women want direction from the advisor, 3) women are more risk averse, 4) a couple’s finances are merged and jointly invested, and 5) the woman in the couple is less knowledgeable about investing than the man. Moreover, the research documented that 60% of the time, advisors made eye contact with the man when meeting in person with a heterosexual couple.