Clients are changing, and you must too

One challenge we see is passing on knowledge from one generation of advisers to the next, and a second is ensuring there are enough advisers to cover demand from a new generation of investors who have different thoughts and priorities when it comes to wealth management.

This leaves wealth managers at a crossroads: only firms that begin adapting now will be able to turn these into opportunities.

The greatest wealth transfer

The biggest trend affecting money management is that the wealthy are getting younger.

Baby boomers, and the generation before them, the silent generation, are set to leave $30tn-$68tn (£24tn-£55tn) to their children, who are largely millennials. This will be the single greatest wealth transfer of our time.

But who, exactly, are millennials?

They are a more diverse group of high-net-worth individuals than the sector is used to serving. In this cohort, there are a growing number of women and non-Western people.

Just in the US more than 44 per cent of millennials are non-white, and by 2030 women will have about $30tn in assets.

Yet, it’s not just important for wealth managers to understand that they’ll soon be sitting across the table from faces they may not have previously.

They also need to understand what millennials want and how to translate that into service.

What millennials want

Unsurprisingly, and this point cannot be emphasised enough, many millennials expect their wealth management experience to be, at least in part, digital.

In their digital engagement, millennials often use tools like apps to arrange their lives, and more importantly to track their progress across any number of fields and set well-being targets.

Managers who primarily focus on the details of investments in discussions may not keep millennials engaged.

This sets a baseline they also expect from their wealth management. When it comes to managing money, we see this manifest itself in the form of goals-based investing.

Here, investments are a means to enable lifestyle objectives – buying a house, taking a few years off and travelling, or starting a family or a business.

Getting to know these elements and why they are important is critical because they drive trust in managers.

This means that managers who primarily focus on the details of investments in discussions may not keep millennials engaged.

Currently, many managers are falling short in this regard – fewer than a third of millennials feel their advisers actually get to know them.

Add to this the trend of millennials conducting their own research and being independent in investing, we have a situation where we’re seeing more advisers being challenged by their clients, placing a premium on highly-customised advice, solutions, and those who truly listen.

There is another major element advisers must understand about millennials regarding what they want their money to enable: the impact money has on the planet and its people is of the utmost importance.

Around one-third either exclusively or frequently put their money into environmental, social and governance products.

Greying managers

Besides wealth management clients getting younger, we’re also witnessing that managers are getting older.

In fact, the average adviser is 51, with just 10 per cent younger than 35. More than 20 per cent plan on retiring in the next 10 years and they don’t have a plan for who will replace them.

Advisers should focus on recruiting from those who are underrepresented in the field.

This puts significant pressure on managers, especially considering 80 per cent of those set to inherit their parent’s wealth plan on changing advisers.

Thus, what can managers do to meet millennials’ expectations and ensure their businesses not only survive, but do well?

There’s no quick fix to the changing demographic in wealth management. There are, however, steps firms can take to ensure longevity.

To increase headcount, managers need to get creative in recruiting. As the wealthy themselves are diversifying, advisers should focus on recruiting from those who are under-represented in the field, like people from minority backgrounds.

To attract and keep young advisers, firms should tie compensation to book-building and increasing knowledge, instead of growing assets.

This further incentivises people from minority backgrounds and those with lower incomes. All in all, managers should look beyond the usual recruitment grounds, like wirehouses, for new recruits.

Keeping clients involves a team approach to management.

A big issue is the generational disconnect between ageing investors and younger clients. Bridging this gap means improving training to include new methodologies and technology.

Technology can also greatly improve firms’ regulatory and compliance abilities, giving them more time to spend getting to know clients. What also helps is arranging a succession path well before retirement.

Regarding clients, keeping them involves a team approach to management.

Teams need to be multigenerational, to ensure knowledge and skills are transferred from retiring advisers to their younger colleagues and vice versa.

Additionally, teams should focus on building relationships across multiple generations of their clients.

All this ensures continuity between retiring managers and those who will take over, making it easier for a new generation of managers to confidently advise clients who look, talk, and think like them.

Zlatko Vucetic is chief executive of trading platform Infront Finance