With the Great Wealth Transfer already underway, wealth is moving to younger generations who have different perspectives on investing and requirements for financial advisory services. Advisory businesses and home offices of all sizes must find ways to adapt as Gen Z and millennials gain greater wealth.
We sat down with Michael Kim, CEO of AssetMark, who refers to the Great Wealth Transfer as the “Great Opportunity Transfer,” to discuss how shifting demographics are reshaping wealth management, how Next Gen advisors can have a competitive edge and what Next Gen clients expect.
Staying Ahead As Wealth Transfers
Kim pointed out demographic shifts occurring in our industry. Cerulli predicts that $105 trillion will be transferred to Gen X and younger generations by 2048, and that $47 trillion of that will be controlled by women. Cerulli also says millennials will inherit $46 trillion and Gen Z will inherit $15 trillion during that same timeframe.
Noting that these are “major forces impacting the industry today,” he says that firms must ask what this means for advisors, how advisors can address this phenomenon and how to capture their share of this trend.
To respond to these needs, Kim says AssetMark created its Advanced Planning Program that works like an “outsourced family office” that supports advisors with a team of financial planners, attorneys, accountants and other experts to help advisors assemble comprehensive wealth transfer strategies and provide estate planning guidance for their clients.
In December, the firm hired Erin Wood, formerly of Carson Group, as Senior Vice President of Advanced Planning to lead those efforts. The program is expected to formally launch in the first quarter of this year.
Starting Next Gen Advisors The Right Way
Kim believes that Next Gen advisors can have a competitive edge in the shifting landscape. This dovetails with the need to onboard more advisors as McKinsey expects approximately 100,000 advisors to retire over the next decade.
He cautions that younger advisors must be onboarded in the proper way, as advisors nearing retirement must plan for increasing the valuation of their businesses and place the right persons as successors.
“As an industry, we don’t have an onboarding program for that type of [Next Gen] advisor,” Kim said. “We need to start thinking strategically about how to help these advisors become the next leaders of the industry.”
“We need to start thinking strategically about how to help these advisors become the next leaders of the industry.” – Michael Kim
Kim points to his firm’s Ascent Program as an example, a program that tracks and helps advisors through three stages of their career – attracting and onboarding new advisors, developing Next Gen advisors as leaders, and helping first generation advisors in building and executing succession plans.
Next Gen advisors, Kim notes, need to not just learn how to be “a trusted advisor for Next Gen clients, but really understand the ‘business of running a business,’” including how to view revenues and expenses, employee issues and valuation of their firm, to become better at both advisory skills and business management.
Next Gen Clients
Kim pointed to data by Cerulli showing that 70% of millennial heirs would likely fire their parents’ financial advisor. “Financial advisors need to understand and exceed the expectations of Next Gen clients,” he said, noting that many advisors aren’t taking the time to understand this demographic.
“They’re asking for anything, anytime, anywhere,” said Kim, emphasizing that the Next Gen wants high levels of personalization, including in their portfolios.
“They’re asking for anything, anytime, anywhere.” – Michael Kim
Kim pointed to three areas where advisors need to meet Next Gen client expectations: digital experience, investment strategies and tax optimization. He notes that Next Gen investors require an intuitive experience in the investor portal, supported by good back-end technology. AI will be critical to producing this digital experience.
Investment strategies will trend towards SMAs, custom portfolios and direct indexing. Next Gen clients want tailored access to specific securities, and the classic 60/40 portfolio with mutual funds will not work with them.
In the area of tax optimization, Kim says, “Believe it or not, even millennials care a lot about taxes.” He notes that “90% of investors are most concerned about the tax impact of the Great Wealth Transfer.”
The Next Gen is also concerned about the ongoing tax impact of their investments and looking for ways to reduce it. On how firms can respond, Kim gives the example of his firm’s tax management services (TMS) program that generates an average of 120 basis points of tax savings, which could in many cases offset advisor fees.
Julius Buchanan, Editor in Chief at Wealth Solutions Report, can be reached at julius.buchanan@wealthsolutionsreport.com.
