At the start of 2020, as in years past, business growth was a clear strategic priority at RIAs. Getting new clients through “client referrals” and “business referrals” were by far the top priorities at firms, according to Schwab Advisor Services’ annual benchmarking study.
Beyond referrals, there are other ways to attract investors and grow organically. Clients are favoring wealth managers with in-house experts, such as accountants and attorneys, and some RIAs have sophisticated digital marketing strategies steering would-be investors their way.
But McKinsey & Company says wealth managers that acknowledge a tremendous change coming, and adapt in response, could increase their revenue by as much as one-third.
Wealth managers are underappreciating the impact of the coming transfer of wealth from the large baby boomer generation (those born between 1946 to 1964) to younger ones. As more baby boomers die, trillions of dollars in assets will be in motion and wealth managers have been pondering ways to make sure some of it is headed their way. However, success doing that will require them to better serve a group with a growing level of presence and power as investors: women.
Right now, American women control a third of total U.S household financial assets, or more than $10 trillion. But by 2030, they are expected to control much of the $30 trillion in financial assets belonging to baby boomers — a pool of assets approaching the annual gross domestic product of the U.S., McKinsey pointed out in a paper last week.
Much of the baby boomers' $30 trillion will also transfer to women within that generation. On average, U.S. women live five years longer than men and heterosexual women marry partners roughly two years older. Additionally, a separate McKinsey study last year found more women are the family breadwinners and more are making household finance decisions than ever before. Women change financial advisors 70% of the time after the death of their spouse.
All of the above represent “a critical inflection point for the financial-services industry” and wealth managers need to adapt, according to the management consultant.
“Now the time has come for wealth management firms to refresh their offerings. Firms that wait too long risk losing out on the next leg of growth,” the authors wrote.
Companies that cater to women and better serve them as long-term investors will acquire and retain more of them, and outperform their peers as a result. This is especially the case for wealth managers that attract millennial women as clients and could see up to four times faster revenue growth. Advisors winning the business of the small client segment (younger women represent 15% of affluent households’ investable assets) have annual revenue growth of 5%, outperforming the industry average of 1%, according to McKinsey.
There are a lot of ways wealth managers can ensure they keep women as clients and attract new ones.
“As unprecedented sums of assets shift into the hands of women over the next decade, wealth management firms have a choice. If they want to attract and retain female customers and capture some of the trillions up for grabs, they will have to diversify their offerings and commit to a much more systematic approach. This will include making changes across multiple areas — go-to-market, people and practice management, value propositions, and technology — and supporting new initiatives with change-management levers like incentives.”
There is “no silver-bullet solution” but the paper gave some specific examples of changes wealth managers should make.
In a survey of more than 10,000 investors, McKinsey said many married women often felt shut out of discussions about wealth because advisors reached out to them infrequently or only on matters of day-to-day cash management, rather than bigger investment decisions. Ensuring that women are included in those discussions is critical if a wealth manager hopes to retain them as a client.
RIAs appear to be doing a better job at this than others, perhaps because more new ones are opening that specifically cater to women. McKinsey interviewed RIAs that said their new female clients came to them from other wealth managers “where they didn’t feel they could ask basic financial-literacy questions or spend enough time [with advisors] to find the right financial plan to meet their goals.”
But that is just one of the basic needs that wealth managers can address.
Companies also need to identify advisors who have had success serving and attracting women and leverage their knowledge and experience within their organizations. McKinsey also recommends experimenting with different service and fee models better-suited for higher levels of service women are interested in.
Other ways to consider transforming a wealth management firm to better serve women might also include changes to employee compensation and benefits to support women within the firm and encourage more to join, showing clients the company understands and supports women. Those steps might even be necessary given the competition for women in the industry.
The wealth management industry is struggling to attract enough young professionals to replace its existing workforce and only 15% of financial advisors are women, according to McKinsey.