As the great wealth transfer unfolds, with trillions of dollars in wealth transferring to millennial investors, traditional family office advisors risk becoming extinct if they don’t adapt and future-proof their consultancies.
An InvestmentNews survey taken a few years ago revealed that 66% of children fire their parents’ financial advisors after inheriting their wealth. More recent research by the Boston-based research firm, Cerulli Associates, confirms this, although their numbers are far bleaker. According to their research, only 13 percent of the affluent investors surveyed report working with the same advisor that their parents used.
It’s little wonder when one considers that more than half of the 544 advisors polled in the InvestmentNews Data survey reported meeting with their clients’ children less than once a year and just over 18% had never met with them.After all, while the average family office advisor is typically over the age of forty nine, and spends endless hours crafting and discussing investment and asset management strategies with the family’s older generations, the ultra-high-net-worth 20-something millennial heirs are off at events like Burning Man.
While the generation gap may seem more like a chasm, failure to connect with the next generation poses a significant challenge to family office advisors, many of whom have spent the better parts of their careers fostering profitable relationships with family patriarchs. Advisors who cannot effectively engage and establish relationships with the next generation, not only run the risk of losing substantial volumes of business and income but will also discover that their consultancies are far less valuable to potential buyers. For those who have not already taken steps to mitigate these risks, now is the time to identify where the issues lie, find ways to overcome them and leverage the opportunities these changes will bring.
Engaging the next-generation
When it comes to family offices, many trusted advisors are seasoned professionals who have developed close ties to the family heads. These relationships often span decades and the inherent trust and value these advisors contribute cannot be discounted.
It is generally accepted that people want to invest with those they know and trust. Getting to know and capturing next-generation heirs and earning their long-term loyalty is vital. This requires a shift from the one-to-one to one-to-many model in which the advisor acts as a consultant to the whole family and not only the primary wealth creator.
David Poole, Head of Financial Services Center of Excellence at Publicis Sapient, states, “Advisors need to engage their client’s children earlier on to establish relevance and trust.” It is, therefore, essential that advisors consider broaching the topic of wealth transfer and succession plans with their clients. Encouraging clients to include their children in meetings can be of great benefit to all involved, even if succession will only take place two decades into the future.
Poole notes that when advisors do meet with younger generations there is often a gap in digital capabilities and empathy around what matters to younger investors. In these meetings, family office advisors should be prepared to treat the next generation like new clients whose business they’re trying to win. This means asking questions to determine which areas of the business interest them and where their own values and objectives lie. Formulating strategies that include these within the greater scope of the family office can help to build engagement. This is critical as an engaged, knowledgeable, next generation aids smoother succession transitions in the future.
The interpersonal relationships built during meetings can be solidified by using digital tools and media. Establishing a relevant, relatable digital and social media presence is vital. According to Poole, “The right technology can help avoid customer switching to digital-first services for self-directed investors.” As such, advisors should consider developing or leveraging existing platforms to engage next-generation clients and offer them the opportunity to access their information, learn more about investing, utilize wealth management tools and communicate in ways native to them.
Expectations are higher, be prepared to up your game
Family offices are rapidly evolving and as they come of age, there is a greater demand for agility, both internally and among the advisors they retain. The increasing globalization of these companies means they often require teams that can work on an international level. Advisors who prove that they can develop agile, end-to-end strategies and pull in specialists from various disciplines to complement their core offering are more likely to be retained, even after succession takes place.
In addition to these demands, the next generation of ultra-high-net-worth individuals (UHNWIs) often has very different ideas of what the family office could be. Driven by the need to have a clear, defined higher purpose, social and impact investment causes are often high on the agenda.
Family office advisors also need to be aware of the next generation’s approach to risk and investments. As one multi-family portfolio analyst responding to the 2019 Global Family Office Report survey put it, “A lot of money has been changing over to younger hands – and the next generation has a longer investment horizon and also a bit more risk appetite than the older generation.” As such, family office advisors need to be aware of these factors when assessing investments. Those who can identify opportunities that align with the family’s values and objectives will remain valuable assets to the firm.
Expand your horizons
Family office practices in various countries differ when it comes to bringing in external advisors and talent. In the United States, these assets are selected based on skill and experience, whereas in Europe, they’re often selected from within familiar networks. Understanding this helps family office advisors to strategically position themselves according to their market.
Joining forces with multi-disciplinary consulting teams where advisors can still add value in their fields of expertise but alongside others who may help to provide opportunities, create relevance and context for their work can be helpful in both markets.
Now is also the time to refresh one’s knowledge or even consider expanding into new areas of next-generation interest within the consultancy framework. The changes that are taking place and will continue to do so during the transfer of wealth bring both risks and opportunities.
Family office advisors that act now to mitigate these risks and future-proof their businesses by developing agile frameworks geared towards next-generation involvement and engagement will not only survive but thrive in the decades to come.