There is no shortage of opinions on The Great Wealth Transfer. Whether you see it as an opportunity or a threat, there’s no doubt that it will shake up the financial services industry. Within the next two decades, an estimated $84 trillion will be passed down to charities and younger generations — e.g. Millennials and Gen Xers —from their parents and grandparents.
While Gen X, Millennials, and Gen Z are destined to be the biggest beneficiaries of the Great Wealth Transfer, so too are their preferred financial providers. The ability for financial advisors to capture and maintain these assets in movement will depend on how prepared they are to address the needs of newer generations.
As a fintech company focused on innovative digital wealth solutions, SigFig is uniquely positioned to help advisors compete for this transfer of wealth by helping to free up advisors’ time and provide more seamless customer experiences that leverage innovations in technology.
The Shift in Assets is Beginning
According to Federal Reserve Board data, Baby Boomers (born 1946–1964) and, to a lesser degree, the Silent Generation (1945 and earlier) control 65% of the nation’s wealth — or roughly $88 trillion.
Traditional banks have long enjoyed a firm foothold with these older investors. According to a recent EY survey of more than 5,000 consumers, wealth managers and banks (national, regional, and digital) are considered the most trustworthy financial brands by the majority of individuals above the age of 65 (57%). That holds true for the 55-64 age group (51%) as well. However, there’s a definitive shift among younger cohorts, with 51% of Gen Z and 49% of millennials naming a FinTech as their most-trusted financial brand.
While traditional banks have the advantage of incumbency and can offer several advantages to these soon-to-be wealthier households, heirs and beneficiaries of the Great Wealth Transfer won’t necessarily trust their new-found windfalls with their parent’s financial advisors. In fact, many reports have shown that up to 80% of heirs end up switching advisors. To win or maintain these assets, advisors will need to show that they can support the needs of younger generations.
Fintechs Continue to Gain Market Share Among Younger Investors
Digital-only banks are positioning themselves among long-standing market leaders. According to a report by Galileo Financial Technologies, while Baby Boomers and Gen X hold most of their funds in a traditional account, Millennials and Gen Z approach their finances differently, keeping 56% and 53% of their funds in some form of digital or prepaid account, respectively.
It’s a trend that is growing. A recent study by PYMNTS.com shows that 57% of millennials and bridge millennials are extremely or very interested in using a digital bank in the next 12 months. The primary reason provided for considering the move to a digital bank was access to improved transfers, with 43% of consumers saying that this is their greatest motivator. The study showed that Millennials are also interested in digital banks because they perceive digital banks to be more secure and provide earlier access to the newest technologies.
Younger Generations Expect More Personalized Guidance
Younger generations are looking for a more holistic and personalized approach to their financial needs and expect their advisor to be aware of their financial situation.
FIntechs offer the promise of more cutting edge technology, leveraging machine learning and artificial intelligence to present only those solutions that are relevant.
According to an Accenture survey of 1,000 investors, 91% of respondents valued being heard and understood by their advisor above everything else. On top of that, roughly a third of respondents expressed that they would increase their investments with an advisor if they received a hyper-personalized experience. This is particularly true with Millennials and Gen Z.
How can advisors compete? The ability to deliver more personalized support will be an important differentiator moving forward. Advisors that leverage technology to automate onboarding, portfolio selection and day-to-day management can free up time to have more valuable conversations with new clients and prospects. Investing time in providing education for clients will also become increasingly important to win new business and retain assets.
Leveraging Technology Will Be a Key Differentiator
A recent Cerulli study revealed that advisors spend more than 50% of their time on non-client facing activities like investment research, due diligence, monitoring, trading and rebalancing, and managing day-to-day operations. Technology can save advisors time by incorporating automation and other tech-enabled functions to streamline much of this work, so that advisors can spend more time building relationships and expanding the scope of advice they deliver.
Features like automated daily health checks and automatic rebalancing can help manage an investor’s portfolio to match their goals and risk preferences behind the scenes, taking the burden of constant checks off of the advisor. Automated tax-loss harvesting can also be done behind the scenes to help limit the impact of taxes for clients, and save advisors the time and effort of sorting through multiple transactions.
SigFig’s automated platform can also streamline new client onboarding, helping to reduce the time spent on mundane activities like completing forms and gathering needed documents. A personalized portfolio can be opened in less than 10 minutes.
This frees up more time for advisors to get to know their clients and build relationships.
Education Will Become Increasingly Important to Win New Business and Retain Assets
Clients are looking for more than just basic portfolio advice. According to Accenture’s recent survey, clients expect their advisor to help with their complete financial picture, including advice on banking, insurance, and taxes. Specifically, 85% of Generation X, 91% of Millennials and 97% of Generation Z expect such services from their advisor, compared to only 47% of Baby Boomers.
Settling and managing an estate is often a lengthy, complicated process — and the larger the estate, the more complex it will be. The firms that are able to guide younger generations through this financially challenging time and establish enduring relationships will be well positioned for the foreseeable future. Building education support for more complex planning topics, including how to manage the impact of taxes, setting appropriate investment goals and succession planning will become increasingly important.
Additionally, providing guidance on personal finance topics outside of investing like budgeting, improving credit score, and insurance planning can help build a younger client’s financial literacy and establish trust. Being an advocate and a source of truth to help them navigate a variety of financial decisions can help reduce their stress and strengthen your relationship.
The Advantages of Partnering with SigFig
SigFig’s Digital Advice and Digital Advice Pro products can help advisors save time by automating some of the work of day-to-day management, while also offering advanced collaboration solutions. For example, SigFig Engage allows an advisor to meet with multiple people simultaneously or separately around the same accounts for planning.
The Great Wealth Transfer will shape the financial services industry for decades to come. Advisors that incorporate more technology into their business will have more time to spend with clients to offer personalized service and set themselves apart.
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