Advice on great wealth transfer research from Arizent

5 takeaways from Arizent's research on the great wealth transfer

June 21, 2023 6:26 PM

Winning young heirs as clients is key to growth for many wealth management firms, but few of them see it as a true priority.

A new report by Financial Planning's parent company Arizent explains how advisors can catch up with peers who are further along in wooing the next generation of rich clients. Industry research firm Cerulli Associates predicts $72.6 trillion in assets will pass down to heirs through 2045 — in addition to $11.9 trillion headed for charities — in the so-called "great wealth transfer."

Arizent's report, "Capturing the Next Wave of Clients," was released June 19 and sponsored by Nuveen, which previewed the findings with Arizent at FP's INVEST 2023 conference.

Surveyed wealth management professionals agreed that client acquisition was a key growth driver, but only 35% deemed younger investors a "critical priority" or "high but not critical priority" to acquire — behind high net worth clients, whose investable assets were at least $1 million but under $30 million, as well as ultrahigh net worth clients, who had at least $30 million, and business owners and retirement plans such as 401(k)'s.

Yet the massive wealth transfer is "already accelerating," according to Chayce Horton, a research analyst on Cerulli's wealth management team.

"Intergenerational wealth transfer by HNW households (is) set to double from $700 billion in 2023 to $1.4 trillion annually in 2033," Horton said.

Single-mindedly chasing older ultrahigh net worth investors may mean missing out on where the money really goes when they pass it down — and that could happen soon.

The Arizent study was conducted online in April 2023 and polled 394 respondents, the majority of whom were in senior roles at firms including wirehouses, national/regional broker-dealers and registered investment advisors. 35% of the firms had $1 billion or more of assets under management, 38% had an AUM between $100 million and $999.9 million, and 27% had less than $100 million of AUM.

Scroll down to view key takeaways from the research. The entire report can be found here.

Younger investors are being ignored

Across the survey pool, "new investors" under age 27 made up only 7% of their total clients, and those aged 27 to 44 made up only an additional 20%.

Yet "some of them will benefit from the first phase of wealth transfers," the report said.

Advisors ignore them at their own peril: "The difference in business success (for firms) not offering comprehensive estate planning and wealth transfer management, versus ones that do, is night and day," Horton said, adding that firms failing to offer competitive wealth transfer services to clients are "likely to be left in the dust sooner than later."

The coming 1.5%

1.5% of all U.S. households will be the source of 42% of all wealth transferred in coming decades, according to Cerulli data cited in the Arizent report.

"Advisors need to consider a strategy that sets their firms up for long-term success, by not only appealing to younger investors but also considering how these limited but lucrative HNW and UHNW investors fit into the equation," the report said.

Smaller firms are behind in the wealth transfer race

The smallest firms in the survey, with less than $100 million in AUM, lagged the biggest firms in offering wealth transfer services. 42% of those smallest firms offered a defined wealth transfer strategy, compared to 68% of the biggest ones.

Those largest firms, with $1 billion or more of assets, are also more likely to not only offer wealth transfer services but also use technology, such as videoconferencing, robo-advisors and AI chatbots, to reach younger clients more efficiently and intuitively.

New services for a new generation

It's not enough to simply meet with the younger generations of wealthy clients' families — advisors also need to market relevant services to those not-yet-rich kids.

While older clients typically have more wealth and prioritize retirement planning and estate planning, younger ones could benefit from advice on college and student loan planning, buying a first home, asset security and even basic things like budgeting and starting to invest.

A fresh face

Firms need to hire more young advisors who can appeal to younger clients, the study found.

However, only 13% of smaller firms are deploying this strategy, versus 50% of the larger firms, the study said. An RIA advisor said in the report that "not having enough young advisors" had prevented their firm from attracting and serving more young clients.

"As clients live longer lives, heirs can be a variety of ages and generations. It's important to meet them where they are by having flexible technology and a diverse bench of advisors," said Laura Jansen, a senior wealth advisor at Ironwood Investment Counsel in Scottsdale, Arizona.

Jansen said that many of her clients have daughters, for instance, and "it is important for them to have an advisor that can speak to the unique planning perspectives for women."