The great wealth transfer puts client retention in the spotlight

The clock is ticking for wealth management firms regarding a major, once in a lifetime wealth transfer. Those that fail to act risk losing a significant percentage of the assets under management, but there are many opportunities for financial institutions that address the issue head on.

Why is the wealth transfer so significant?

There is due to be a major wealth transfer from baby boomers in the next five to ten years. Based on birth rates for this generation and average life expectancy, these transfers are set to ramp up significantly to a peak around 2027. The reason this is a priority for wealth firms is because 80% of clients change advisor at the point of inheritance. In addition, population trends suggest that there will never be such a significant shift in the next 100 years. Despite the major risk, 76% of firms only engage with heirs at the point of transfer. 

Digital channels offer a seamless transfer

A Global Data study showed that over 80% of firms offer services relating to inheritance, and most regard building ties with the next generation as critical to client retention. However, this element is not integrated into the digital strategy or the digital solution. More integrated estate planning tools, and a portal designed for heirs to make a smooth transition at the point of inheritance could mean greater client retention because it will provide continuity and valuable support at a challenging time. 

Client demographics are set to change 

Often when this topic is discussed, it is presented as an intergenerational wealth transfer. This leads to suggestions that wealth firms should prepare to address the needs of younger generations that have higher expectations around digital services. This is certainly true, but it is not the whole story. Often, assets are passed to the spouse before being transferred to younger generations and, according to a McKinsey study, 70% of women who inherit wealth from their husband leave their advisor. In some cases, it may be that they are unused to managing finances and switch to their children’s provider when they ask for support, they may move to a more sophisticated digital solution that allows their children to provide that support remotely or simply want the option to learn more about the portfolio via digital tools before it is passed on to future generations.

The rise of the female investor

By 2025, women will own 65% of the wealth held in the UK and this is only partly driven by the upcoming wealth transfer. Inheritance is coupled with social change to bring this about; for example, HNW individuals under 40 are twice as likely to be female. These factors are driving the need for an investment service that is tailored to the needs and priorities of women. A digital wealth service that can be personalised for different demographic groups will be increasingly valuable because the make-up of the wealthy is changing. Wealth firms that don’t acknowledge – and address – this with their usual care and attention to customer service risk significant and potentially catastrophic client attrition in the next five years.

Digital wealth tools to help firms address the great wealth transfer

The good news is that the technology to address many of these issues is already available. Features such as digital signatures can be used to reduce the client’s administrative burden at a difficult time. Firms that offer estate planning services could integrate this into the dashboard of the client portal, and tools such as a secure document vault can help clients manage the process. Providing third party access to limited, pre-defined client data for IFAs, solicitors, tax specialists and those with power of attorney can also smooth the transition and place the wealth management firm at the heart of the process. Digital onboarding tools can provide heirs with limited access to the client portal prior to inheritance, building the relationship and providing some pre-registration support. 

Digital tools such as these can add up to a seamless, client-centric digital wealth service that will support stronger retention rates. More than that, they will help firms thrive during this period of significant change. If other firms fail to act on this topic and lose clients at the point of inheritance, the opportunity is there for organisations to win significant amounts of high-value business with an efficient and convenient digital wealth service, personalised to the needs of the newly wealthy.