Hanging on to HNW assets

With trillions of high net worth (HNW) investors’ dollars due to pass to the next generation in the next 10 years, the risk and opportunity facing incumbent wealth managers is set to rise, suggests a new report from research firm GlobalData.

According to the firm, almost 20% of global HNW investors’ wealth, amounting to US$8.6 trillion, is set to change hands in the years ahead.

And, it projects that more than one-quarter of this total will be up for grabs as HNW investors’ children move assets from their parents’ firms.

“Given that 28.3% of HNW clients’ children discontinue the relationship with their parents’ wealth manager upon inheriting, GlobalData predicts US$2.4 trillion of HNW wealth will move from one competitor to another as inheritors look for a provider better suited to their needs,” it says.

“This means intergenerational wealth transfer in the HNW space will be a big source of new business over the coming years,” said Heike van den Hoevel, senior wealth analyst for GlobalData.

Amid these conditions, the firm says that building ties with the next generation of wealthy investors is necessary to minimize the risk of switching. Wealth managers need to be sensitive to the next generation’s differing needs — including greater demand for socially responsible investing and higher usage of technology and social media — as they seek to retain next-generation clients and attract new ones from other firms.

“Interestingly, a larger proportion of wealth managers regard intergenerational wealth transfer as an opportunity, as opposed to a threat, showing either overconfidence or an overinflated sense of security,” said van den Hoevel.

“Ultimately, someone’s gain in assets under management represents an outflow to someone else. There are two parts to the equation: building loyalty among the next generation of HNW investors to avoid churn in the first place, and targeting those looking for a new provider after inheriting,” she said.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.