And as if that wasn’t enough, the data suggests that up to 90% of inheritors switch wealth management providers – implying a potential global loss of $23bn in revenue each year for firms caught off guard. Max Rofagha writes
This isn’t a future concern – it’s an immediate reality. In the UK alone, we’re looking at annual wealth transfers nearly doubling from the current £69bn to £115bn by 2027, soaring to £350bn by 2047. For wealth managers neglecting to engage families beyond their primary clients, that means running the risk of considerable asset outflows.
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But, as the saying goes, every cloud has a silver lining: this shift can also be a substantial opportunity for wealth managers who are proactive in forging relationships with the next generation of investors. Traditional methods like exclusive private event invitations may not resonate with these time-constrained, tech-savvy investors who prefer active portfolio management. So, in order for wealth managers to stay relevant the task ahead involves revising engagement strategies to echo retail clients’ behavioural changes. Wealth managers will not survive if they adopt a ‘build it and they will come attitude’. Instead, they will need to formulate innovative new strategies to actively engage this new generation at scale.
Personalised content that’s interactive and encourages self-education
Creating engaging educational content is vital to connect with the next generation of investors. It’s about more than just putting information out there. Individual investors want succinct, mobile-friendly and tailored content that can be easily digested while on the go and empower them to make their own informed decisions.
For wealth managers, offering content isn’t just a nice-to-have service: it also provides a clear commercial advantage. According to EY research, wealth management providers can build trust and demonstrate their value by offering educational thought leadership and financial coaching. And the clients knowledgeable about investment are twice less likely to switch providers over the next three years compared to those with low investment knowledge.
Making investment products more accessible
Rather than waiting for the wealth transfer, engaging clients early in their investment journey is key. Wealth businesses that are able to serve smaller accounts on a cost-efficient basis are best positioned to capitalise here. Whether that is through banking or self-serve robo options for Individual Savings Accounts (ISAs), General Investment Accounts (GIAs), and Pensions.
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By GlobalDataDIY trading platforms also have an opportunity here to extend their product range into the wealth segment. Modern investors are far more likely to be self-directed, in fact 63% of our community currently prefer to manage their own investments. The rise in the use of DIY platforms in the UK – whose Assets Under Advisement grew to £345bn in 2022 from £217bn in 2018 – underscores this trend.
Furthermore, recent data has shown us that 70% of our community plans to invest directly in ETFs this year, and 83% plan to invest directly in stocks. Catering to these preferences, either by offering the means to buy these active products or providing advice in the context of a complete view of a customer’s assets, will be very attractive to the next wave of wealth management clients.
Using data-driven insights to build trust
Over the years, many institutions have invested heavily in modernising their core infrastructure and digitising paper-based processes. These advancements enhance data quality and enable greater personalisation – but they don’t necessarily translate into more client relationships.
The key to ensuring a return on investment from an engagement strategy lies in leveraging the insights gleaned from these upgrades. After all, a sizable 64% of millennials, along with 51% of investors aged 35-54, are ready to pay more for personalised investing products and services. And when it comes to choosing a provider, personalisation takes precedence, with 35% of millennials and 34% of the 35-54 age group citing it as the most crucial deciding factor.
Data on how prospective clients interact with content, attend virtual events, or manage their portfolios can present numerous opportunities to add value. That might mean offering a prospective meeting with a relationship manager after noticing that a prospect is researching an insurance product. Alternatively, it might make sense to share relevant content – like the latest news, analysis, or educational resources – aligned with the topics that the prospective client is currently interested in.
Empowering your clients creates opportunities to build relationships at scale. With the right blend of these three strategies (whip-smart content, early engagement, and data-driven insights), wealth managers can fortify their relevance and demonstrate their true value to a new generation of clients with different needs.
Reflecting on a 2020 study by Schroders, it’s unsettling to note that only a third of firms had a targeted approach to addressing the impending wealth transfer to the next generation. What’s more surprising is that a staggering 78% were aware of this opportunity. As we navigate these shifting tides, it’s essential that the wealth management industry moves in lockstep – refreshing its approach for the next generation of wealth holders.
Max Rofagha is the CEO of Finimize
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Schroders Plc