It has never been more important than now to develop a connection with the younger family members of your clients. We are in the midst of the greatest transition of wealth in history. By 2050, over $27 trillion is expected to pass from one generation to the next, and with that transition a significant percentage of the next generation will leave their parents’ and grandparents’ advisors. According to the 2012 study Next Generation Wealth: The new face of affluence, 62% of ultra-affluent next-geners surveyed said they would likely change advisors, and many industry watchers put that number much higher.
All is not lost. A follow-up 2014 study of 87 ultra-high-net-worth individuals between the ages of 18-40, Next Generation Wealth: Defining a New Direction, found 69% of those surveyed said they are likely or extremely likely to continue using their parents’ and grandparents’ advisors. So what accounts for this seeming change of heart? The key difference between the 2012 and 2014 study participants is their engagement levels with advisors. The participants in the 2014 study were particularly engaged: 43% said they have a very active relationship with their advisors. More than half of the 31% in the 2014 study who do not plan to stay with existing advisors also did not have relationships with them.
Engagement leads to stronger relationships. Education coupled with strong communication results in a more empowered and engaged Next Gen. Conceptually it’s simple. In practice, it is not. So how do you get started?
- Old-fashioned trumps high-tech: Millennials, Gen Y, Gen X—the next generation—are often described as tech savvy, data-driven and social media-obsessed. But when it comes to engaging with advisors, face-to-face meetings is what they prefer best. Eighty two percent of those in the 2014 study said they prefer in-person engagement, followed by phone, 72%, and email, 68%. Communication through social media and Internet/video/skype were not particularly sought out, with a mere 15%, and 5%, respectively, seeking such interactions.
- Start early: Building relationships takes time. More than half, 54%, of the 2014 study respondents began working with an adviser when they were under 20 years old and 38% did so in their 20s. Initial discussions often center around who the advisor is and what they do for the family. Over time, they become more sophisticated in keeping with the level of disclosure with which the matriarchs and patriarchs are comfortable. Much can be shared without putting specific dollar amounts on expected family wealth or inheritance.
- Forge bonds with educational programs: Identifying a manner to reach out to the Next Gen, whereby the older generations are comfortable and the Next Gen are interested is crucial. General education fits that bill. Gatherings including members of different families are particularly attractive. Approximately 75% of the 2014 study participants said they would be interested in attending a Next Gen program hosted by an advisor. If you do not have the resources to craft your own Next Gen gathering, taking clients to an existing program held by a university or membership organization is also a strong option. The subject of investments is where the Next Gen member needs the most support.
- Appeal to sense of social consciousness: A hallmark of the Next Generation is they tend to be socially conscious. Discussions around mission-related investing, philanthropy and making an impact are ideal to generate interest and engagement. All of the subjects can be used to teach about wealth management and as a stepping stone to getting them more involved in learning about managing their wealth.
- Understand family values: The majority of the Next Generation have similar values as their parents. A key to engagement is to find out what is important to them—how they view wealth and its purpose.
There is a direct correlation between how educated, and by association, how empowered, a Next Generation family member is, or feels she is, as well as her comfort and happiness with family advisers and wealth plans. By establishing relationships with the Next Generation and helping them learn about their wealth, financial services providers will significantly increase their ability to retain their roles as trusted advisors to the next generation.