The Generational Transfer of Wealth and its Impact on Financial Advisory Practices

The Generational Transfer of Wealth and its Impact on Financial Advisory Practices

The Greater Transfer is coming and it will have a huge impact on your ability to sell your firm for top dollar when that time comes

You're probably familiar with the "Great Transfer." That's the estimated $12 trillion in wealth that's expected to be passed onto Baby Boomers from their parents and other members of the Greatest Generation.

However, you may not be so familiar with what some are calling the "Greater Transfer." That's a transfer of nearly $30 trillion in wealth. It represents the amount of money that will be passed down from Baby Boomers to their heirs. While that may seem a long way off, it's actually starting now in very small stages. It will hit its peak between 2031 and 2045. During that period, 10 percent of total U.S. wealth will change hands every five years**.

 

Impact of the Greater Transfer on Firm Valuation

With the average age of advisors being somewhere in the 50’s, many of today's advisors assume that they won't be in the business for the peak of the Greater Transfer. However, that doesn't mean that the Greater Transfer won't impact their business. It most certainly will. In fact, it's impacting their business right now.

In the past, we've written about how firm valuation is based on more than just assets under management. Multiples may be convenient, but they rarely tell the whole story. Buyers of financial firms are looking at far more than just AUM. They're looking at the firm's technology, its staff, its business processes, its geography, and even its investment and product strategy.

A key consideration for many buyers is likely how well equipped a firm is to retain and grow assets during generational transfers. Advisors who position themselves to retain assets during a transfer will likely find that their firm is much more appealing to buyers than a firm that's made no such effort.

A strategic, well-implemented campaign to forge relationships with the next generation can significantly enhance your firm's value. Even though you may not be active during the peak of the transfer, you can still reap the rewards by elevating your value and sales price. Make the transfer easier to manage for your buyer and you'll likely find that your buyer is willing to pay more for your firm.

 

Greater Transfer Challenges and Possible Solutions

The primary challenge that many firms face in the Greater Transfer is that they haven't invested time or resources into cultivating relationships with heirs. The heirs don't meet their client criteria, so they're not taken seriously.

This is a mistake. A firm can establish those relationships by offering more robust estate planning services. A firm can facilitate conversations between Baby Boomers and their heirs to help both sides better understand each other’s needs and goals. Those conversations and estate planning services can serve as a way to introduce the advisor and firm to the heirs.

Also, advisors need to recognize that heirs may want an advisor who is peer rather than someone who is older. In this regard, an advisor may be well-served by bringing in young talent as both an in-house successor and as someone who can develop relationships with the next generation.

The Greater Transfer is coming and it will have a huge impact on your ability to sell your firm for top dollar when that time comes. Advisors who prepare for it will likely be glad they did so. Advisors who don't prepare may see their firm's value discounted in the eyes of potential buyers.

 

**Source:  http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-CM-AWAMS-Wealth-Transfer-Final-June2012-Web-Version.pdf

 

 

Phillip Flakes is Co-Founder and CEO of Succession Link

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