With only 50% of client relationships retained during inheritance, financial advisors are adapting new strategies as a substantial $84trn wealth transfer looms over the next two decades. Natixis Investment Managers explored the challenges faced by financial advisors worldwide in a recent survey, revealing that the most significant issue in the coming years will be this massive transfer of wealth. The study surveyed 2,700 financial professionals, including 2% from Luxembourg, and found that 43% of all advisors are concerned about losing client assets when they are passed on to spouses or heirs, posing a direct threat to their business continuity.

Despite these concerns, advisors remained optimistic, expecting an average growth of 11.5% in the coming year and an annualised growth of 12.4% over the next three years. However, the research, on 15 October 2024, highlighted that only 50% of client relationships were retained when children inherited assets, prompting advisors to invest more time and resources into family wealth planning and personalised services. Furthermore, most advisors still focused insufficiently on younger investors aged 18-34 years, missing a significant growth opportunity.

Sebastien Sallee, head of Natixis IM Belux, stated in the report that over the past five years, markets experienced sharp declines and record highs, inflation reached a 40-year peak and interest rates rose from near zero to 5% or higher. While changes may not always be so dramatic, Sallee noted that advisors had mastered the art of portfolio management in turbulent times and must continue to adapt to the pace and frequency of evolving macro and market factors. He emphasised that preserving existing wealth was the most crucial challenge advisors faced, stating that they would need to become even more flexible to remain attractive to the next generation of investors. He highlighted the importance of dedicating more time to deepening client relationships and offering financial planning services for the long-term success of their businesses.

Key metrics for advisor success

As part of the 2024 global survey of financial advisors, Natixis IM found that demonstrating value beyond asset allocation, cited by 59% of respondents, was the top success metric for advisors. This aligns closely with the increasing client demand for financial planning services. With a significant transfer of wealth on the horizon, 52% of advisors emphasised the importance of building relationships with clients’ heirs. Amidst a shifting macroeconomic and market landscape, they also highlighted helping clients assess their risk tolerance, with 46% stressing this as essential, while 43% pointed to the importance of guiding clients to invest beyond cash.

Client retention and acquisition

Client retention and acquisition were vital for business growth. Advisors understood that assets were at risk when a primary client died, with 43% increasingly worried about retaining assets from client spouses or heirs. In the short term, acquiring new clients was equally important, but time-strapped advisors reported dedicating less than 10% of their time to this crucial growth activity.

Investment management

Financial advisors faced challenges in an environment marked by the first interest rate cuts in four years, market highs and slowing growth, compounded by the necessity of navigating a year of contentious elections globally. In the short term, 72% stated that fundamentals were more important than elections, while 64% ranked public debt as a top economic risk in the long term.

Client management

Advisors spent 43% of their time meeting with or managing clients, but they acknowledged that more work was needed. In the long term, they had to address growing client demand for financial planning services, which 57% believed differentiated their practice. In the short term, keeping clients invested and helping them avoid their number one mistake--timing the market--remained essential.

Product selection

In the long term, advisors recognised that transitioning more clients to model portfolios would help free up time needed to deliver financial planning and other services (50%). In the short term, advisors turned to private investments for differentiated returns, although 65% noted the difficulty in building a portfolio of private assets at scale.

Asset Retention

As the coming “great wealth transfer” threatened their fundamental objectives, advisors focused on retention as a key business strategy. Three-quarters (76%) of advisors believed that the most important factor for retaining assets was relationship building. As a starting point, 82% reported regularly discussing family wealth planning with older clients, while 81% included heirs in financial planning discussions. Additionally, even if heirs were not part of the planning discussions, 81% expressed comfort in asking clients for introductions to the next generation.

Targeting prime earning years

Globally, advisors identified individuals entering or in the midst of their prime earning years as the optimal prospecting demographic. A notable 72% focused on those aged between 35 and 50, while 85% concentrated on clients aged 50 to 60. In the US, 96% targeted the 50 to under-60 age bracket, with 61% globally and 88% in the US seeking clients aged 60 to 65--many of whom may be consolidating assets and repositioning their investment strategy for retirement.

In contrast, most advisors did not target younger individuals aged 18-34 (46%). The only exception was in Latin America, where demographics skewed younger, and two-thirds of advisors focused on this age group. Given concerns about wealth transfer and asset retention, advisors may have wanted to examine how to better engage this client segment.

Advisors implemented technology to complement their segmentation efforts, with 48% deploying customer relationship management systems for greater efficiency. Another 37% sought to use artificial intelligence to automate routine tasks and enhance data analysis.

Political and policy risks

Despite the emphasis on client acquisition and retention, advisors recognised the importance of managing client investments. In light of recent market fluctuations, 72% believed that underlying fundamentals were more important than election results. In the US, 54% indicated that election outcomes had already been priced into the market, although only 39% of US advisors agreed, reflecting a heightened concern about election scepticism potentially affecting markets.

Advisors there expressed greater concerns about policies arising from the White House and Congress. More than six in ten believed that the future of antitrust regulation was underappreciated, particularly in light of ongoing antitrust cases against major corporations. On the trade front, 69% said the US election had the potential to hasten bifurcation in the global economy. A significant 73% believed that US national debt would increase regardless of election outcomes.

The expansion of wars (62%) ranked nearly as high on the risk spectrum as public debt, with 64% of advisors concerned that escalating geopolitical conflicts could impact markets. Additionally, 61% were worried about persistent inflation, while the same percentage expressed concerns about US-China relations, with 65% feeling that the risks associated with a breakdown in these relations were underappreciated.