Intergenerational Wealth Management: What’s the Opportunity?

As a group, baby boomers have distinguished themselves as the wealthiest generation of Americans to date, having achieved peak levels of income and having taken advantage of a wide range of retirement programs to manage their savings. Now, with the aging and the imminent deaths of members of the baby-boomer generation, their wealth is being transferred to the next generations.

To put it bluntly, there’s a lot of wealth in them-there IRAs and 401ks, and, as we all know, you can’t take it with you. So where is it going?

The answer, in all too many instances, appears to be “Right out the door.” The numbers are staggering: Over the next 30 years, an estimated $30 trillion in wealth will transfer from baby boomers to Generation X and millennials—with serious implications for the financial institutions which held those funds and fostered their growth for all those years, through boom and bust. Right now, when a parent dies, at least two-thirds of the next-generation beneficiaries move the assets they’ve inherited to another institution. For the original firm, this represents a loss not only of assets, but of the opportunity to cultivate and retain multiple generations of clients.

Why are financial advisors failing to address this opportunity? James Watson has given his thoughts on the matter in a previous blog post, but I’ve also been researching this question, and here are four reasons this demographic challenge seems to have fallen by the wayside.

Settlement and distribution of assets is a painful experience for beneficiaries.

Nobody wants to breach the subject of the retention of assets with the beneficiaries of an estate, which makes addressing the opportunity a non-starter for financial services institutions. Throughout the process, the inheritor experience is all too often horrible, leaving the beneficiaries with a very negative impression of the firm which managed those funds, and thus those beneficiaries typically move the assets to another institution.

Financial advisors have challenges with inheritor relationships and the inheritance.

Many advisors have no relationship with the inheritors. Their original clients don’t want to involve their adult children in wealth meetings, and those children don’t want to have the same advisor as their parents. Then there are problems with the inheritance itself: In many cases the wealth gets split among multiple parties, and as a result is too small to be managed profitably—and then the kids go and spend it too quickly.

Financial services firms don’t have adequate supporting technology, or aren’t using it effectively.

Based on my work with organizations in the financial services sector, I can think of three kinds of gaps in the technologies which could help those firms support the retention of this wealth:

  • Operational efficiency gaps: At financial services firms, many front- and back- office processes require paper, are manual, and require face-to-face client interaction, all of which prevent the automation of account servicing and any enhancement to account servicing processes.
  • Engagement gaps: Few financial advisors and firms have the technology tools to support effective collaboration and self-service. For instance, advisors don’t use tablets effectively (e.g. to open accounts). And they don’t effectively leverage digital wealth tools, social media, digital marketing applications, and e-signature technology—all of which precludes the flexibility to engage with younger, next-generation clients in the ways they prefer.
  • Portfolio management gaps: Most advisors don’t have the ability or the tools to provide value-added portfolio services—services such as advising on held-away assets or tax-loss harvesting, and the result is they fail to develop multi-generational portfolio offerings to attract families and inheritors.
Finally, most inheritor-focused initiatives are superficial—although many are starting to include necessary steps in the right direction.

My research on this topic turned up a number of examples of initiatives that financial institutions are implementing to address this opportunity:

  • Help children in early financial planning life events
  • Encourage family meetings
  • Sponsor events for different age groups
  • Build multi-generational teams
  • Offer an affordable fee structure
  • Engage early and communicate often
  • Develop digital-based services
  • Focus on women

The problem with such initiatives is that they aren’t supported by changes in processes and through the application of technologies that can make these new initiatives both effective and sustainable. Each of the items on this list is an important piece of the intergenerational retention of wealth management, and each of them should be pursued--but, I would contend, as part of a carefully planned, executed, and managed program, one that includes the necessary supporting technology.

So what should financial services organizations be doing? I have plenty of ideas on that front, so stayed tuned for my next blog post, where I’ll discuss specific initiatives firms should implement to address the four gaps listed above and thereby support intergenerational wealth management.

And in the meantime, you can get regular updates on our research on this and other timely topics by signing up here for Doculabs’ newsletter.





Rich Medina
Rich Medina
I’m a Principal Consultant and co-founder of Doculabs, and the resident expert in using ECM for information lifecycle management.