Multi-generational Wealth Management: Why It’s So Difficult

It’s become a significant challenge for financial service firms: how to retain the assets of their aging baby-boomer clients, when those assets are passed on to their clients’ beneficiaries.

For the last 6 months, Doculabs has been researching the available industry data and interviewing key industry insiders on exactly what they're doing now to address this need. The short answer: Not much. Given all that’s written about the significant wealth “at risk” and likely to make its way out of Mom’s account and into Junior’s account at a competing firm, you’d expect more action being taken to address the problem. Yes, some of the obvious tactics are being pursued: train advisors to empathize with women (the likely immediate beneficiaries of their husbands’ wealth), brand and position for younger investors, increase the educational content and social media activity.

But there are some bigger hurdles. First, many advisors still chase “big game”—on the lookout for investors with $5 million-plus of investable assets. Kids inheriting $350,000 are less attractive. Yet for the asset management firms these advisors represent, this broad sector of “newly, kind-of wealthy” investors remains a ripe (and largely untapped) opportunity. In fact, this sector of investors looks and acts (or reacts) a lot like the self-directed investor segment. What works with these folks: technology enablement. So, while the advisor community might not be all that interested in dependents, investment management firms should be – and they should be leading with their technology offering.

The problem, of course, is how to be proactive and engage with a future investor you don’t really know. How can the firm create affinity with descendants (the eventual beneficiaries), while the advisors are focusing on the parents—and don’t really want to invest the time to foster relationships that might play out in 5 years? How do you create “stickiness” with people who are only indirectly associated your firm?

Technology offers capabilities that can help to foster the desired affinity with the next generation, and we’re now starting to see some credible attempts in the market. One I like a lot is Fidelity Investment’s FidSafe, described as “the safe, easy, no-cost way to store, organize and access digital copies of your family’s important documents.” (Fidelity has a short video on this service; check it out here.)

The idea is that once families load their materials into the system, collaboration is simplified (at least for the younger generation, accustomed to using Dropbox, Box, Google, etc.). And with this particular use case, being among the early offerings in the market has significant advantages. Getting families to all agree to anything is tough enough, but once some reasonable amount of key documents has been loaded into the Fidelity system, I see little likelihood that materials will ever be moved. Yes, nice and sticky.

I expect more offerings like FidSafe to emerge in the near future, as financial service firms realize they need to offer technology capabilities (not just education and “robo” advice) that engage their existing clients’ dependents (and likely beneficiaries)—capabilities that provide real utility to the next generation of investors, going forward.

Rich Medina
James Watson
I’m President and co-founder of Doculabs, serving as executive sponsor on consulting engagements for financial services clients.