What does it take for a financial advisor to build a lasting and meaningful relationship with a wealthy young adult?
This question is top-of-mind for forward-thinking advisors now that Millennials – those born between 1980 and 1995 – have entered adulthood. These young adults are reshaping every aspect of our society, and they’re rapidly replacing Baby Boomers and Generation X as the target demographic for consumer product companies, financial services firms and countless other industries.
Millennials are poised to become the beneficiary of the largest intergenerational wealth transfer in North American history, with $30 trillion in assets forecast to pass from Baby Boomers to their heirs.1
But this seismic movement of assets raises a critical question for financial advisors, particularly those serving ultra-high-net-worth (UHNW) families – whom we define as having a net worth of at least $35 million. As the next generation of UHNW individuals comes to the fore and begins making decisions for their families, who will they call first when they need financial advice?
From attorneys to accountants, to private banks and family offices, a cadre of professionals typically guides UHNW families on their financial planning and wealth transfer needs. But we wanted to dig beneath the surface to learn how advisors can engage the Millennial scions of wealthy families and be their lead counsel when this generation begins making big financial decisions for them.
There aren’t any simple answers to the questions I’ve raised, and that’s why OppenheimerFunds partnered with Campden Wealth to produce the Proving Worth study, the industry’s first in-depth look at the unique perspectives and values of UHNW millennials. Our goal is to help the advisors who serve wealthy families do their jobs more effectively while cultivating their next generation of clients.
Close the Engagement Gap
Both anecdotally and through the Proving Worth study, we’ve found that for advisors, engaging this demographic is easier said than done. To put this challenge in perspective, I recall the frustration of an advisor I know who works with a wealthy family in North America.
Every year around Thanksgiving weekend, this advisor is invited to attend the family’s annual meeting to brainstorm ideas for growing and protecting their investment portfolio. The meeting is led by the father, who usually spends much of the time reviewing their portfolio holdings on a host of financial metrics, such as earnings before interest, taxes, depreciation and amortization (EBITDA), and return on invested capital (ROIC).
But he spends very little time discussing the companies themselves and going over colorful areas like their lines of business, products, services provided, etc. In fact, much of the financial analysis goes over the heads of the young adults who are in attendance and there’s very little engagement with them during the meeting. As a result, they usually just sit there ignoring the proceedings, opting instead to pass the time on their smartphones.
Find Investments that Align with Their Values
One of the best things an advisor can do in a situation like this is to get to know these young adults better and assess their understanding of finance. If you find their financial knowledge is lacking, spend time working to develop their financial literacy. That effort will help build the framework of a long-term personal relationship.
Fostering deep connections with a client’s children is challenging, but through our research, we know that UHNW Millennials are passionate about philanthropy and impact investing. They see these areas as conduits for engaging with causes they believe in, which range from supporting education and the environment, to enhancing living conditions for the less fortunate.
Even with their altruistic streak, UHNW Millennials are still practical and they’re not simply interested in impact investing to feel good. They’re looking for sustainable, long-term returns.
For our frustrated advisor, it makes sense to start a conversation about the causes that matter to these young adults. Next, comb through the family’s investment portfolio together and look for companies they already own that happen to align with their values. If there’s nothing in the portfolio that does, the advisor can guide them in finding investment opportunities that do.
We’ve discovered that although Millennials have a strong interest in impact investing, there’s a big gap between their interest level and their knowledge of strategies to act on those interests. This creates a tremendous opportunity for advisors to guide them and, in the process, develop long-lasting relationships.
This is the first installment in our monthly series about the issues facing UHNW families and their advisors. To learn more about what UHNW Millennials want from their advisor, visit our website to read an executive summary of the Proving Worth study, or gain access to the full report.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.