In a previous blog post, “Intergenerational Wealth Management: What’s the Opportunity?” I identified the significant opportunity that financial services firms face with the aging of the baby-boomer generation.
To reiterate, over the next 30 years, an estimated $30 trillion in wealth will transfer from baby boomers to Generation X and millennials. And the challenge for financial services firms is that an estimated two-thirds of all beneficiaries choose to move the assets they’ve inherited to another institution—which means the original firm loses out on the opportunity to manage these assets across multiple generations of clients.
If you recall, last time I explained why financial advisors and firms are failing to address the opportunity. This time around, I explain what firms should do to get it right—basically, how to succeed at intergenerational wealth management.
I’ve broken it down into five tracks that financial services firms should focus on in 2018, by undertaking initiatives to address the specific challenges of intergenerational wealth management. Each of these tracks requires effective use of new technologies in redesigned processes; we recommend implementing them in a phased approach, which provides benefits at each step and controls risk.
The tracks, listed In the order in which you should tackle them, are as follows:
The following figure shows where each of these tracks fits in the general client lifecycle:
Within each of these five tracks, here are the initiatives you should consider undertaking to improve your firm’s capabilities for intergenerational wealth management.
Going forward, focus on the experience of all parties involved and on improving the efficiency of the settlement and distribution process. The primary issues are complexity and inefficiency. The complexity results from the need to track and manage tasks that span many different operating groups within a financial services organization (e.g. Brokerage, Retail, Real Estate, etc.); the general inefficiencies are the result of manual or paper-based processes. An effective solution is to use a team of “expeditors” to coordinate activities and transfer assets.
For your technology strategy, we recommend the following:
Almost all intergenerational wealth management activities require digital collaboration and self-service capabilities, but these capabilities are most critical for relationship management.
To meet the particular requirements of intergenerational relationship management, we recommend that you develop relationship management use cases to drive the implementation of engagement technologies. Focus on the “family” as the primary client, and engage early and often. Sponsor events that involve family members. Offer programs for different age groups, etc.
For the technology to support engagement with this broader conception of the client:
Intergenerational portfolio management is about providing value-add services, with a focus on the family, as opposed to the individual. Examples include aggregating held-away assets, harvesting tax losses, rebalancing, recommending model portfolios, providing robo-offerings, and providing a dashboard view of alerts and opportunities.
Firms can help their clients’ children with early financial planning decisions around events such as college savings, home buying, and new births; assist clients in setting up 529 plans; ensuring adequacy of life insurance coverage; and in creating lifetime gifting plans.
For the technology to support such portfolio management activities:
Like “typical” onboarding of new accounts, onboarding for intergenerational wealth management requires activities and coordination of multiple areas, such as Front Office, New Accounts Team, Money Management, and Funding. But it differs in that it focuses on the “family” as the primary client, and it should also address efficiency challenges (e.g. previously concentrated assets now distributed among multiple new clients, inherited assets too small to be managed profitably with existing processes).
For the technology to support this new approach to onboarding:
Like intergenerational Onboarding, intergenerational Servicing requires activities and coordination of multiple areas, with some differences: Front Office, but also Tax, Money Management, Court Accounting, Overdrafts, Bill Pay, and Account Maintenance. And as with Onboarding, servicing should focus on the family and address the entailed efficiency challenges.
At a high level, your technology strategy is the same as for intergenerational Onboarding, implemented this time across the units involved in the servicing processes:
And what about vendors and products to address the various technology pieces? There are many relevant tools, including Truelytics, ElysysWealth, Fidsafe, Navatar, Wealthfront, Betterment, and of course Salesforce. Not to mention the ECM and process management solutions. But today none of them provide a productized comprehensive solution by themselves or using partnerships.
How should you get started? For most financial services firms trying to develop intergenerational wealth management, we recommend the following next steps:
Finally, if you’d like some help taking any of these steps, Doculabs offers the expertise to get you started and to guide you along the path toward that future state—from the initial requirements definition and technology selection through the change management to put the new processes in place. And if you’d like to stay informed on our thinking on this and related topics, you can sign up here for our newsletter.