Wealth managers face imminent ‘flight risk’ of next-gen clients and advisers

Wealth management is facing a “fundamental transformation” as the latest annual Capgemini World Wealth Report finds the wealth of Australia’s high-net-worth individuals (HNWIs) reaches $1.68 billion. 

The annual report, which surveys almost 6,500 HNWIs worldwide and over 1,400 wealth management staff, found the intergenerational wealth transfer will shake up in the HNWI landscape very soon. In Australia, HNWI wealth already stands at $1.68 billion across 334,800 individuals in 2024.

But a shift is anticipated in the make-up of this wealth as 63 per cent of HNWIs surveyed said they expect to receive an inheritance from an older generation within the next 10 years. Over half of these individuals will be under-43, the firm said, and 95 per cent will be under-60, which Capgemini classes as the 'next generation'. 

While this initially sounds like it will be a benefit to the industry, 81 per cent of these next-generation HNWIs said they will switch away from their parent’s wealth manager within one to two years of receiving said inheritance. This is because of factors such as lack of digital services (46 per cent), unavailability of alternative investments (33 per cent), and inadequate value-added services (25 per cent).

This frustration is not going unnoticed by wealth managers who acknowledge they struggle to understand beneficiaries’ needs, compared to their parents’ generation, and to build relationships with them. Over half of wealth managers told Capgemini that they are struggling in this area. Others are employing specific relationship managers (RMs) to work with this demographic as their primary contact, but even in this regard, RMs are hindered by the lack of advanced tools and technologies to meet their needs.

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“Losing unsatisfied next-gen HNWIs is a significant financial risk for wealth management firms. Revenue breakdowns of some of the largest wealth managers reveal that, typically, over 60 per cent of their revenue comes from management and performance fees, which are directly impacted by assets under management,” Capgemini said.

“Wealth management firms that proactively enhance their engagement strategies for next-gen HNWIs and successfully retain their relationship managers will position themselves for sustained revenue growth. This approach will enable greater AUM retention and secure long-term financial growth.”

Clients have said they expect their RM to provide real-time market updates focused on financial advice, tailored recommendations, seamless communication, and to act as a trusted partner to serve clients’ investment, financial, and lifestyle needs. Beyond being an adviser, RMs are now expected to treat each next-gen client as a “segment-of-one” by offering them hyper-personalised advice. 

“In today’s data-driven wealth management landscape, gathering comprehensive client information with a clear and a very personalised objective is more valuable than simply analysing financial metrics or selling firm specific products to clients. RMs need to be knowledgeable and skilled to have effective client interactions and gain their loyalty.

“Unlike previous generations, who often remained loyal to institutions, younger HNWIs prioritise individual advisers who understand their evolving financial goals, lifestyle preferences, and multi-jurisdictional needs.”

Money Management has previously covered how wealth managers are more readily offering bespoke portfolios to a larger client base as more and more clients seek to have their personal values reflected in their investment portfolios. 

Adviser retention

It is not only clients that firms risk losing amid the generational shift as advisers are also considered a “flight risk” by Capgemini, with one in four planning to move jobs in the next 12 months to a rival firm or to set up on their own. 

Like clients, one-in-three advisers expressed dissatisfaction with their firm’s digital capabilities which they feel is impacting their productivity. Manual processes impede client service and increase the rate of errors, they said, while others feel unable to connect with clients via digital channels or use digital tools such as portfolio tracking and analytics.

Beyond technology, 29 per cent were dissatisfied with their earnings potential as an adviser or RM and 32 per cent were dissatisfied with their career progression. 

If an adviser left, 62 per cent of next-gen HNWIs said they would follow them to their new firm. 

“One in four RMs are dissatisfied with their firm’s tools and services for supporting next-gen HNWIs and navigating the transmission of wealth. With the great wealth transfer underway, RMs require enhanced tools and capabilities, which might prompt some of them to switch firms.

“Within the next 12 months, our survey indicates that one in four RMs are likely to move, with the majority transitioning to a competitor firm and a few starting their own ventures.”

Capgemini recommended RMs are assisted with human-led and technology-supported systems, strong AI and analytics support, and automated workflows with minimal human intervention within an integrated platform. 

“Wealth management firms’ efforts should complement human expertise by building an integrated digital platform, keeping the RM focused on client engagement. By building a sophisticated and scaleable platform for their RMs that integrates automated back-office tasks and translates data analysis into actionable, proactive insights, RMs will gain in productivity and insightful advice.”

From a personnel perspective, they should build a pipeline of talent through hiring and mentorship, and invest in training.