By Daryll Welsh, Head of Product at Ninety One Investment Platform
Global trends suggest that trillions of dollars are expected to be transferred from current asset owners to the next generation over the next few decades. This is because the baby boomer generation – those born between 1946 and 1964 – holds about 50% of all America’s wealth. In five years’ time the last of this generation will be 62 years old and the oldest 80, meaning that this share of wealth will soon change hands through inheritance.
Similar figures are true for South African investors: 50% of clients on the Ninety One Investment Platform are older than 60, but hold 70% of the assets, and 33% of clients are over the age of 70.
The generations set to benefit from this wealth transfer – Gen X and Gen Y, or millennials – are broadly aged between 25 and 56. Given the extent of this range, their investing habits and attitudes towards money vary widely. Generally, they are digitally savvy and have unlimited access to investment and wealth management information. Millennials may gravitate towards on-demand digital services, look to digital brands they trust or access social media ‘investment experts’.
These next-generation investors may also have different investment preferences than their parents. These could range from seeking investments that help to affect social and environmental change, to investing in crypto. They may therefore perceive the advisor’s investment proposition as being out of touch, and research from the US indicates that 70% of heirs plan to change their financial advisor when they inherit assets.
These factors mean that advisors risk losing assets when inheritance occurs. The risk increases when the first interaction with the next generation follows the death of a parent, or where the beneficiaries have an existing relationship with a different advisor.
Ninety One Investment Platform’s family office offering aims to address this challenge in two ways. Firstly, this fully digital and automated service provides the opportunity to add value to clients by driving down the administrative costs of their investments. By charging one sliding fee scale based on the collective value of their assets on the platform, all family members enjoy reduced fees as assets grow, new investments are made, or additional family members are added to the family unit.
Secondly, consolidating family assets on a single platform delivers consolidated reporting of multiple family accounts as one, on a single dashboard. This provides easier data aggregation, reporting and analysis and creates greater scale and efficiencies for advisors.
One way for advisors to protect their business and potentially grow their asset base is to establish relationships with potential heirs well before inheritance takes place. Key life events such as marriage or a child’s graduation can provide authentic opportunities to engage at the family level and develop relationships with other family members. Employing a younger financial advisor in the practice can also help make the connection to the next generation.
One of the stumbling blocks that advisors often face is that a client’s investments are spread among several product providers. This makes it difficult for the advisor to get a consolidated view of a client’s investments. At the family level, this becomes even more challenging, so advisors tend to focus exclusively on one or both parents’ investments.
The benefits of Family Office for clients include increased cost efficiencies due to scale, simplified cash-flow analysis, and access to individual tax documents and statements, and easier performance monitoring. For advisors, the opportunity for consolidation with a preferred investment platform provides a meaningful step towards eliminating legacy platforms while the platform reduces the need to pay for off-the shelf customer relationship management systems, and lowers costs and improves efficiencies, freeing up more time to spend with clients and grow assets under advice and revenue.
Deepening client relationships across generations will become essential to the long-term health of advisor practices – in fact, up to 80% of heirs say they would stay with an advisor if they have been involved in the family investment planning prior to inheritance. Financial advisors who work holistically with families to better understand the needs of the principal members and the individual members that make up the family will be at an advantage when wealth changes hands.