From Inheritance to Innovation: How Wealth Managers are Adapting for the 'Next Gen'

The wealth management industry is evolving due to the emergence of 'Next Gen' clients, who will inherit an estimated $70 trillion in the next 25 years. In this article, we explore insights from three experienced Equiom Directors in the Crown Dependencies - Stuart Lawson from Guernsey and Nina Johnston from Isle of Man delve into how wealth managers like Equiom, are adapting to cater to the unique needs of these 'Next Gen' clients. 

The Significance of 'Next Gen' Clients 

Stuart Lawson, Interim Managing Director of Guernsey, acknowledges that the Crown Dependencies have a long history of providing comprehensive wealth management services and were pioneers in introducing fiduciary regulations. However, it is essential to understand why 'Next Gen' clients are significant for the future of the industry. 

Nina Johnston, Managing Director of Equiom Isle of Man, emphasises the importance of these clients, who are reshaping the industry with their focus on sustainability, technology, and education. They seek transparency, ethical standards, and modern technology integration. Their preferences are significantly different from the traditional client base, and wealth managers must adapt to cater to these digital natives. Failing to do so could lead to the loss of a substantial client base as 'Next Gen' clients accumulate wealth over time, in addition to the inherited wealth.

Additionally, 'Next Gen' clients are fundamental to the development of the wealth management industry because they are pushing the boundaries of conventional investment methods. These clients are often highly educated and carry a sense of responsibility to pass on a legacy to future generations for a 'better' world. Their focus on sustainable investments, global connectivity, and technology, including the development of AI, plays a vital role in shaping the industry. 

Changing Preferences and Behaviours 

With such a substantial wealth transfer expected in the coming years, the preferences, and behaviours of these 'Next Gen' clients are set to evolve. Nina provides an insight into what wealth managers can expect from these clients: 

• Transparency: 'Next Gen' clients seek transparency in the succession process, requiring clear communication on benefit criteria and timelines 
• Ethical standards: 'Next Gen' clients prioritise ethical standards that align with their values, which encompass environmental and charitable considerations 
• Development opportunities: They value ongoing learning and seek mentorship, training, and skill-building 
• Inclusivity: A diverse and inclusive workplace is a priority 
• Technology: They expect modern fintech solutions to be integrated into working practices, with a reliance on personal devices to access up-to-date, secure information tailored to their individual needs 
• Succession diversity: Business owners among the 'Next Gen' want succession planning to consider a broader range of candidates, not just those with seniority 
• Empowerment: A leadership style that empowers employees and encourages innovation ahead of strict hierarchy 
• Work/Life balance: 'Next Gen' clients seek out partners that prioritise this balance 

In summary, 'Next Gen' clients look for more flexible, open, and inclusive behaviours that align with their values and aspirations. 

Overcoming the Challenge of Retention 

Retaining 'Next Gen' clients is a challenge, as only 13% retain their parent's advisors after inheriting. Stuart highlights that the Crown Dependencies have a deep pool of experience and active professional networks that encourage ongoing development. This experience, combined with fresh approaches, is helping Equiom to build lasting relationships. 

Nina also emphasises the importance of early engagement and transparency. By involving 'Next Gen' clients in the succession journey as it unfolds, wealth managers can build trust. However, advisors must avoid falling into the trap of rigidly sticking to old methods and instead listen to the changing objectives and beliefs of the 'Next Gen'. For example, Equiom has several large trust structures where wealth is passing to the next generation and are navigating numerous complexities when it comes to investment strategies, risk profiling, loss of capacity concerns and, sadly also family disputes – in these cases communication and education is paramount to managing these often-emotional situations. 

Graham emphasises the need for advisors to align with 'Next Gen' clients' beliefs and vision. Advisors must stay relevant in the face of technological and geographical changes to remain valuable.  

Key Concerns and Responsibilities of ‘Next Gen’ Heirs 

Inheriting wealth is not without its challenges, and ‘Next Gen’ heirs face various responsibilities and concerns. Nina highlights some of the key ones: 

• The burden of financial responsibility: ‘Next Gen’ heirs may feel daunted by the responsibility of managing significant wealth. Trusting experienced wealth managers to guide them through the transition is crucial 
• Tax and legal issues: The complexities of multi-generational, cross-border, blended families can be significant. At Equiom we have a broad professional network that can streamline advice 
• Social impact: Balancing a desire to make a positive impact on society while respecting the family’s legacy is a common concern. Wealth managers can provide education on wealth planning and philanthropy 
• Sustainability: Sustainability is a top priority for many clients, and we find that by guiding ‘Next Gen’ through the process and introducing the concept of subtle strategic changes, helps to manage the transition respectfully 

Advisors play a vital role in addressing these concerns and responsibilities, offering both financial and emotional support to clients. 

Connecting with ‘Next Gen’ Clients on Key Topics 

Advisors must adapt to connect with ‘Next Gen’ clients on topics like ESG, cryptocurrencies, and new technologies. Nina notes that they should be well-informed about emerging technologies and provide informed advice. 

Graham emphasises that advisors must also understand the risks and opportunities presented by evolving technologies and provide valuable advice on the potential consequences. Advisors should act as confidants, offering relevant and respected guidance. 

Stuart notes that 'Next Gen' clients will expect real-time data that provides clear insights into risk, performance, and various ethical metrics. They will also look for a broader spectrum of investment strategies, including impact investing and charitable giving. Advisors need to be adaptable and well-informed to meet these demands. 

Conclusion 

The 'Next Gen' clients are ushering in a new era of wealth management. Their unique preferences and priorities, combined with significant wealth transfers, are reshaping the industry. Wealth managers must adapt to these changes, emphasising transparency, inclusivity, and sustainable investing.  

At Equiom, we not only draw from our extensive experience but also look ahead to the future. We're committed to supporting the professional and personal development of the next generation of advisors, pooling our knowledge, and investing in future-proof infrastructure, including digital investment portals. These forward-thinking initiatives ensure that we remain responsive to the evolving needs of our clients, supporting their financial aspirations with innovation and dedication.  

This article was first published in the ThoughtLeaders4 Private Client Magazine Issue 12.

This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. This article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained within this article without obtaining specific professional advice. Please contact Equiom Group to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees, and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.