Finance & Investing

The Great Wealth Transfer: Winning the Next Generation

Why do wealth managers charge for advice the way they do? Why is it so complicated? It completely depends on the nature of what types of investors need money management services the most, and the age at which they decide to seek out those services. 

 

Today, most clients of RIA firms tend to be Baby Boomers and seniors. One TD Ameritrade study found that Boomers made up 46% of clients and seniors tallied up to nearly a quarter of all clients. 

 

The challenge inherent in the demographics most served by RIA firms doesn’t have anything to do with the people; however, it does have everything to do with time.

 

As clients age and look for ways to give or pass on their wealth to the next generation, advisors are often left on the outside looking in as that transfer of wealth takes place. 

 

And by “often left on the outside” we actually mean “almost always.” As many as 90% of next-generation clients fire their parents’ advisors in the first year after a parent’s death.

 

Clearly, advisors have a lot of work to do to prepare to serve next-generation clients — and those preparations need to happen right now. In this blog, we’ll get you up to speed on how to get your firm ready for the Great Wealth Transfer and what role Riskalyze can play in helping you keep assets from moving.

 

What is the Great Wealth Transfer?

The Great Wealth Transfer is the generational exchange of assets from Baby Boomers to their children over the next several decades to the tune of $30 trillion (some estimate it to be as high as $70 trillion).

 

It’s the greatest transfer of money from one generation to the next in history, and it’s not a one-time event — in fact, it’s happening right now and it will continue happening over the next several decades as Baby Boomers and today’s seniors grow older and give more and more of their money to their children and grandchildren (and eventually, pass on all of it).

 

The overall number fluctuates over time and depends on market conditions, but you can start to see the picture. There’s a lot of money in motion over the next several years and decades, and the advisory firms who position themselves best with next-generation clients right now will reap the rewards in the years to come.

 

Even if the Great Wealth Transfer hasn’t hit your own advisory firm yet, it’s never too early to begin building relationships and making preparations.

 

Studies have suggested that upwards of 80% of next-generation clients won’t want to work with their parents’ financial advisor. Instead, they’ll look for their own advisor. 

 

How can advisors avoid that fate and lose much of the business they’ve spent a lifetime trying to build? The answer lies in proving their value with unique, personalized communication.

 

And unsurprisingly, risk can play a central role in those conversations.

 

How to Keep Assets in the Family by Proving Your Value

Let’s not complicate the process of keeping the next generation with you. You proved to their parents that you were the best financial advisor for them; now, it’s time to prove to your clients’ children that you’re the best financial advisor again.

 

How do you do that? You treat them like the unique, different people that they are. 

 

Your clients’ children are decidedly not their parents. Even though they’ve been raised by the people you’ve known for years, they have their own goals for life, attitudes about money and wealth, and career aspirations.

 

We spend a lot of time in pop culture talking about not becoming our parents (just look at the ads Progressive is using right now to sell car insurance). The next generation might come into your relationship with the belief that they want to find a new advisor because they don’t want to be like their parents. 

 

Here are four common problems that financial advisors run up against when beginning a relationship with a next-generation client, and what you can do to turn barriers into opportunities. 

 

Problem:
If you haven’t built a relationship with the next-generation, they likely don’t have a good reference for who you are and what you’ve done.

Solution:
Rather than focusing your conversations on what you’ve done for the parents, treat a next-generation prospect as you would a cold prospect. Ask them questions about their life, and immediately get to understanding them and their needs—not framing your ongoing relationship in a way that emphasizes the approach you used with their parents.

Problem:
Your clients’ children assume that your approach to wealth management is out of date, simply because of your association with an older generation.

Solution:
You can’t change who you are, but you can illustrate your value. The best way to prove you’re not out of date is to explain the methodology behind the assumptions you make for investing and planning, and illustrate with recent market examples of how those strategies have served you. Put your philosophy into context, and demonstrate the way these strategies would impact the next generation’s finances (not their parents).

Problem:
You’re stepping into family dynamics you might not know about.

Solution:
When you go into a meeting with clients’ children, don’t enter with assumptions about their family relationships, especially if you haven’t met with them before. Instead of making closed-ended statements about their parents, ask open-ended questions about their relationship and allow them to guide the conversation.    

Problem:
Your clients’ children are overwhelmed with so much information about their parents’ lives and finances. Handing them a 30-page financial plan they’ll likely never read won’t help.

Solution:
Everything is about building trust, and you can do it right away with making a determined effort to understand family dynamics, financial knowledge, and the specifics of how the next generation wants to approach wealth building—without the burden of comparing them to their parents.  Start small, tell them what you can do for them, and deliver every step of the way. Trust can only be built over time, and you have to give yourself a chance to begin building it. 

 

In every situation and every conversation, you need to continually set correct expectations as the first step to providing undeniable value over time in client relationships. 

 

3 Ways Riskalyze Gives Advisors an Advantage in the Great Wealth Transfer

From the beginning of conversations with a next-generation client to the ongoing management of expectations throughout what could be decades of working with a client, Riskalyze has your back.

 

It’s often thought that financial advice is an intangible service, but when you know how to demonstrate the real work you do to match up investor risk with their portfolio, your work becomes much more clear. Take a look at how you can use the Risk Number® in our risk tolerance platform to guide your communication and prove your value in tangible ways.

 

  1. Getting to the Commitment

    Bringing on new business looks a little different when you’re trying to work with a next-generation client.

    There’s a lot going on for a likely grieving family, and the key to painting a picture of how you’ll act in their best interests is simplicity. Incite curiosity with the powerful prompt “What’s your Risk Number?” and walk through an exercise to see how their Risk Number compares with their current investments, their newly inherited assets, and their parents’ risk targets.

    And instead of a hypothetical example of how you’ll bring their current portfolio more in line with their goals, the parents’ portfolio gives you a way to demonstrate how you’ve already successfully done it.

    It’s a quick way to show them why they should invest with you, and no one else.

  2. Onboarding Clients

    You’ve shown a next-generation client how you’ve helped their parents and your ability to get their own portfolio in order, and as a result of that early legwork you’ve done to build a relationship and show them tangible results of a fearless approach to investing, they want to work with you.

    If you haven’t already had them take the Risk Questionnaire, now’s the right time to get their Risk Number and know for sure that the new portfolio they’ll invest in with you is the right one for the amount of risk they need to take on to achieve their long-term investing goals.

    The beauty of the Risk Number is that it relates risk in a way that everyone can immediately understand. Clients just “get it” without requiring the kind of investment jargon that makes eyelids droop.

    In a family relationship, the Risk Number can even give everyone a shared understanding and a common language. Many parents (elderly or not) aren’t comfortable talking about dollar amounts with their children. The Risk Number gives them a way to talk about how they’re invested before they pass on their nest egg, without getting into the kinds of details that can create awkward silence at the dinner table.

    If you’re bringing on a next-generation client, the Risk Number can also help you communicate with them about their parents’ wealth in a more comfortable way too—and quickly pivot toward how their wealth inheritance is going to be managed according to their unique Risk Number, not their parents’.

  3. Setting Ongoing Expectations

    Managing expectations doesn’t end when a new client signs with you. In fact, the work is just beginning. If you fail to deliver on your value over the long term, then it doesn’t matter if a next-generation client chooses to stick with you after a parent’s passing if they move on five years later.

    Every time you meet with a client to review their plan, you have a new opportunity to again demonstrate the tangible ways you’re keeping their portfolio in line with what they themselves affirmed as the right fit for their risk tolerance.

    That’s where the 95% Probability Range comes in. You can explain that while there’s 5% of the risk nobody can quantify, your job as their advisor is to control the 95% that you can. The 95% Probability Range illustrates the “normal” behavior for your client’s portfolio, helping you keep your clients from making fear-bound decisions that blow up long term goals.

    “Now that my clients know their Risk Number and understand their 95% Probability Range, my phone no longer rings off the hook when markets are volatile.” — Shay, Advisor in Florida

 

By continually listening to your clients, you’re establishing trust and camaraderie that will support you as you navigate the momentary turbulent markets that will always surface.

 

Whether you’re trying to keep next-generation clients in your firm as part of the Great Wealth Transfer, simply prospecting with digital marketing strategies, or even growing your firm primarily through client referrals, Riskalyze can empower you every step along the way.

 

Ready for a demo to see how the fearless investing movement can improve your prospecting and sales process? Click here to schedule a time to talk with us.

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