Preparing for the intergenerational wealth transfer


By: David Reeve May 24, 2019 16:56
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As millennials inherit their parents’ wealth, advisors will need to evolve their business practices

Between now and 2026, approximately $1 trillion of wealth will transfer from the baby boomer generation to their children, according to Strategic Insight. This pending intergenerational wealth transfer – the largest in Canadian history – will challenge advisors to build relationships with new clients who have vastly different expectations than their parents.

Many in the wealth management industry have predicted that this technology-savvy generation of new clients will choose robo-advice over human advisors. So far, this prediction has not materialized – the average age of clients among the 14 robo-advisors operating in Canada is 44 years old, according to Ivey FinTech. While millennial clients may not move to robo-advice as predicted, they will certainly demand a frictionless and technology-enabled relationship with their advisors.

Examples of processes where younger clients will expect minimal friction will include gathering “know your client” (KYC) information, compliance and client reporting. This generation has grown up without paper statements, telephone conversations and couriered packages containing multi-part forms. They may value human advice, but they will not tolerate legacy processes. Leading wealth managers are moving quickly to digitize these legacy processes with a focus on improving the client experience. Fortunately, this digital transformation offers a compelling business case for dealers and advisors through the suppression of postage, print and labour expense.

Millennials also expect a higher degree of information transparency than their parents. As internet pioneers, they are accustomed to immediate access to any product information. As their advisor, you will need to be armed with product and pricing information that meets their transparency expectations.

The Canadian Securities Administrators (CSA) have recently proposed new “know your product” (KYP) requirements that are designed to provide increased product transparency to clients. A future regulation will require advisors to understand and compare the products they recommend to similar products in the market. With thousands of products on many dealers’ shelves, this transparency obligation will be met only by leveraging strong KYP technology. Embracing these changes will be an important component of evolving your practice to serve these new clients.

While the above mentioned intergenerational wealth transfer will occur within the next decade, the time to begin modifying your practice to cater to the next generation is now. Advisors who are ill-equipped to connect with tech-savvy clients will put their client relationships at risk. Currently, 66% of children fire their parents’ financial advisor after they receive an inheritance, according to InvestmentNews Data. Focusing on building a strong technology-enabled relationship that caters to millennials’ unique needs will ensure that you maximize the retention of these important clients in the coming years.

The accelerating change in client demographics and its impact on the advisor-client relationship will be one of the topics discussed at InvestorCOM’s client conference this year.

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