The sheer volume of high-net-worth (HNW) wealth changing hands over the next ten years will open the door for significant churn in the industry, warns GlobalData, a leading data and analytics company.
The demographic makeup of the global HNW market differs notably from the wider population, given the above-average age of HNW individuals. According to the company’s latest report, ‘Intergenerational Wealth Transfer: Seizing the HNW Opportunity’, *38% of HNW investors are above the age of 60, compared to less than 14% of the global population.
Heike van den Hoevel, Senior Wealth Analyst for GlobalData, explains: “This means intergenerational wealth transfer in the HNW space will be a big source of new business over the coming years.”
GlobalData’s research found that 19.8% of global HNW wealth will change hands over the next decade, equating to US$8.6 trillion. 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.
van den Hoevel adds: “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. 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.”
On the one hand, building ties with the next generation of HNW investors early on is paramount to ensure the continuation of the relationship and minimize the risk of switching after their parents pass away. On the flipside, wealth managers reaching out to the next generation of HNW investors need to be aware of this segment’s different service requirements, given their greater focus on digital channels, socially responsible investing and social media.
van den Hoevel concludes: “Ultimately providers need to find the balance between effectively serving their existing client base and developing an image that resonates with a younger clientele.”
*Data taken from GlobalData’s 2018 Global Wealth Managers Survey of 358 respondents