Attracting the next generation of heirs and self-made rich

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The money is on the move, and private banks and wealth managers are lining up to capture it.

Almost $85 trillion in wealth will be transferred between 2021 and 2045 from aging families to the next generation, according to Cerulli Associates, the research group. The heirs of high-net-worth investors, people with at least $1 million in liquid assets, are already taking in more than $500 billion a year, and turnover is expected to reach $1 trillion a year in less than a decade.

At the same time, the world is also seeing rapid growth in the ranks of self-made millionaires, including those who have founded companies, earned large corporate bonuses, or won major sports or music contracts.

For private banks and wealth management groups, this presents a tremendous opportunity.

More than 85 percent of heirs choose not to use their parents’ financial advisors and instead go in search of a service provider they feel more connected to, according to data from Cerulli.

Indeed, as both groups move up the financial ladder, they want an increasing range of services and are willing to move providers to get them: a recent PwC study found that 46 percent of wealth clients required change or add financial advisors in the future. two years, and 38 percent had already done so.

But earning their business and lasting loyalty can be much more difficult than it might seem. These prospects tend to be younger and have a wider range of interests and backgrounds than previous wealth management clients.

This has forced a significant rethink at some of the world’s most successful wealth advisers, such as UBS and Goldman Sachs. Managers now work with larger teams, including new staff members, who spend part of their time building relationships with the children and grandchildren of existing clients and much of the rest prospecting for entirely new clients. These new associates may not initially be profitable for the company, but the new blood they bring is critical to future success.

Morgan Stanley, meanwhile, has built its fortune in part by leveraging the connections it makes through its business managing employee stock plans for other companies. Rather than just handing out shares, the bank creates individual Morgan Stanley-branded accounts for each recipient and gradually offers a more personalized service as an account grows.

By the time someone ends up getting rich, they’ve already had a lot of interactions with potential sources of advice…You can’t just call someone up and say I’m from Morgan Stanley and I’m here to help, says Jed Finn, head of wealth management. We expanded our channels in 2019 and 2020 to give us access to potential high net worth players before they become high net worth clients.

Some wealth managers also seek out clients by giving informative presentations to groups that cater to the wealthy and those in line to be there, for example, chapters of YPO, a global network that brings together CEOs younger than 45, and bar associations and trade group meetings of divorce and trusts and estates attorneys.

At BNY Mellon, which has been in the wealthy business for so long that some clients are eighth generation, the secret sauce comes from that long-standing relationship. Its wealth managers are experts in arranging family meetings to discuss operating businesses, shared vacation properties and charitable giving. It’s not unusual, says BNY senior wealth strategist Belinda Herzig, for the bank to host a meeting where children as young as eight pitch to older relatives about charities they’d like to support.

You become part of the family’s life, says Herzig. I have been to many weddings and events.

Once relationships are established, personalized service is essential to keep them strong. We spend about 49 percent of our time in investment discussions with clients less than half, notes John Mathews, who heads private wealth management for UBS in the US. Fifty-one percent of our time is in non-investment but critically important discussions about their lives: family, dynamics, succession planning, educating the next generation.

Goldman clients can use a list of what the bank’s wealth manager Brittany Boals Moeller calls services. It’s a network of outside providers that have been vetted for offerings such as senior care, insurance and tax planning. Even before wealth creation, these are busy people, she says. They need a lot of support.

Private banks and wealth managers are also upping their digital game because customers expect easy online access to their money and tailored content. But, at the end of the day, there is no substitute for a living human being.

“For the foreseeable future, I don’t think there’s a world where people who have money don’t want someone on the other side, because at the end of the day, it’s not just about risk-adjusted returns,” says Morgan Stanley’s Finn. . It’s deeply personal, deeply emotional.

Brooke Masters is the US financial editor. Follow him X

This article is part of Property FTa section offering in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investing