Attracting the next generation of inheritors and self-made wealthy

Money is in motion, and private banks and wealth managers are lining up to try to snag it.

Nearly $85tn in wealth will transfer between 2021 and 2045 from ageing households to the next generation, according to Cerulli Associates, the research group. The heirs of “high net worth” investors, people with at least $1mn in liquid assets, are already receiving more than $500bn a year, and the turnover is expected to hit $1tn annually in less than a decade.

At the same time, the world is also seeing rapid growth in the ranks of self-made millionaires — including those who have founded companies, earned big corporate bonuses or won large sports or music contracts.

For private banks and wealth management groups, this represents an extraordinary opportunity.

More than 85 per cent of inheritors choose not to use their parents’ financial advisers and instead go in search of a service provider with whom they feel more of a connection, according to data from Cerulli.

Indeed as both groups move up the financial ladder, they want an increasing range of services and are willing to shift providers to get them: a recent PwC survey found that 46 per cent of wealth customers were looking to change or add financial advisers in the next two years, and 38 per cent had already done so.

But winning their business and lasting loyalty can be a lot harder than it might sound. These prospects tend to be younger and have a wider range of interests and backgrounds than previous wealth management clients.

That has forced a significant rethink at some of the world’s most successful wealth advisers, such as UBS and Goldman Sachs. Managers now work with larger teams — including younger staff members who spend part of their time forging connections with the children and grandchildren of existing clients and much of the rest prospecting for entirely new customers. These new teammates may not be initially profitable for the company, but the new blood they bring is critical to future success.

Morgan Stanley, meanwhile, has built its wealth juggernaut partly by leveraging the connections it makes through its business that manages employee stock plans for other companies. Rather than just hand out shares, the bank sets up individual, Morgan Stanley-branded accounts for every recipient and gradually offers a more personalised service as an account grows.

“By the time someone ends up getting wealthy, they’ve already had many interactions with potential sources of advice . . . You can’t just call someone and say ‘I’m from Morgan Stanley and I’m here to help you’,” says Jed Finn, head of wealth management. “We expanded our channels in 2019 and 2020 to give us access to potential high net worth players before they become high net worth clients.”

Some wealth managers also trawl for clients by doing informative presentations at groups that cater to the very wealthy and those in line to be there — for example, chapters of the YPO, a global network that brings together chief executives younger than 45, and bar association and trade group meetings of divorce and trusts and estates lawyers.

At BNY Mellon, which has been in the rich people business so long that some clients are eighth generation, the secret sauce comes from that long-lived relationship. Its wealth managers are experts at organising family meetings to discuss operating businesses, shared vacation properties and charitable giving. It’s not uncommon, says BNY’s senior wealth strategist Belinda Herzig, for the bank to host a meeting where children as young as eight make pitches to older relatives about charities they would like to support.

“You become a part of the family’s life,” says Herzig. “I’ve been to so many weddings and events.”

Once the connections are established, personalised service is critical to keeping them strong. “We spend about 49 per cent of our time on the investment discussions with clients — less than half,” notes John Mathews, who heads private wealth management for UBS in the US. “Fifty one per cent of our time is on non-investment, but critically important discussions around their life: family, dynamics, inheritance planning, educating the next generation.”

Goldman clients can tap a roster of what the bank’s wealth manager Brittany Boals Moeller calls “wrap around services”. It’s a network of outside providers that the has been vetted for offerings such as eldercare, insurance and tax planning. “Even before creating wealth, these are busy people,” she says. “They need a lot of support.”

Private banks and wealth managers are also upping their digital game because clients expect easy online access to their money and to tailored content. But, in the end, there is no substitute for a live human being.

“In the foreseeable future, I don’t think there’s a world where people who have money don’t want a human on the other end, because at the end of the day, it’s not just about risk adjusted returns,” says Morgan Stanley’s Finn. “It’s deeply personal, deeply emotional.”

Brooke Masters is the US financial editor. Follow her on X

This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment