Few events have exposed such a sharp generational divide as the pandemic

Expert: David Beacham, Business Development Director, Head of Regional Sales, Carmignac

 State of play:

• Based on the presentation by the expert, the discussion started with highlighting the need for more of a family office approach with clients as a result of the pandemic – but what does that mean? Historically it has been trickier to deal with generations of clients rather than the one to one relationship with the principal, but the family office approach means thinking across the needs of all generations around the main client and having segments of advice/portfolios built to align to those goals rather than focussing on just the one generation. The opportunity afforded mid/post pandemic is the ability to pull in all family members and understand the importance of issues across all the individuals with possible stakes in the wealth. It’s about looking more broadly across the family rather than just at the immediate investable assets
• The delegates addressed the question of how their approach to clients had changed – or not – as a result of the crisis and the market volatility. One delegate commented that:

“As we are currently all in this together and still very restricted, no one is at a competitive advantage. However, moving forward, it will be key to find the right blend of virtual and physical contact, based on what clients like and expect. Some clients have wanted a lot of contact in recent months and others haven’t.” 

Moving with the times

• It was observed that servicing the broader family – and the generational transfer of wealth - is something that the industry as a whole has still not really come to terms with, and successive generations have inherited more by good luck than good planning. However, the age-old adage of the first generation making the money, the second spending it and that it has all gone by the third generation was felt to be somewhat out of date now. One delegate commented that in his experience:

“I haven’t seen too much of that waste/destruction among UHNW families and individuals. There is a much greater level of education and understanding and sophistication among wealthy families who take advice and consult - and a much greater professionalism on the client side overall which has made those statistics a bit old and hopefully not as relevant.”

• It was also pointed out that opportunities can be missed, and the right advice not imparted, if the wrong banker is covering the wrong client. In the very protective world that bankers enjoy with their clients, this is sometimes the case, but one delegate observed that where there is high turnover among bankers, clients are exposed to different personalities and styles of banker and can work out what works best for them. However, getting a banker who can transition across generations is more difficult. Today’s clients get used to a banker’s investment style and will work with it, but it was pointed out that the next generation won’t be happy with the same approach or satisfied with a sub-par relationship and will have their own networks.
• Turning to technology, in looking across generations, delegates felt that there hasn’t been too much difference across generations in the past 6 months in the way clients have looked at digitisation. All generations have reacted very positively to new ways of communicating, despite an average older client base well north of 60. However, this age level among today’s wealth owners only serves to bring the issues around generational transfer into starker relief. 

Ramping up communications within the family

• Another delegate commented that it has been a year to really intensify communications with clients and if there is an opportunity to see them in their homes, as the restrictions have eased, bankers are more likely to come across multiple generations passing through and provided the opportunity for greater engagement across the family spectrum.
• Further engagement particularly with younger generations was illustrated by those delegates who have invited teenagers and younger family members in for internships or work experience. A younger family member may start with a junior ISA but this will turn into an ISA and on into a portfolio eventually. Discussions on wealth transfer have become a good way to stay in touch across the generations and many firms see this interaction through work experience as a way to connect better with younger members.
• The crisis does not appear to have generated too much change to the investment preferences, beyond the initial angst and some panic at the outset. It was observed that the crisis was a good opportunity to engage even further with clients:

“We have had good feedback and the bank goes into overdrive with communications in all forms and from all areas of the bank and we plug into our clients extensively.  Many of them have been through crises before and while we’ve had a few challenges, it’s really served to strengthen relationships with clients and we are strong at interacting at times of stress.” 

A variety is key

• The majority of clients have remained invested and the story has been about time in the market rather than timing of the market. A good way of operating along the lines of a family office model has been for those banks who have been able to offer a range of services to clients e.g. a private bank operating as part of a universal bank, where they have all the products to offer clients, ranging from mortgages, to loans etc, that encourage a relationship that extends into financial advice. This leads them to naturally gravitate to the bank when they need assistance, sometimes for quite small things, such as when a credit card won’t work, but it all serves to strengthen the relationship on all fronts.

“Clients see us as their financial partner – they call when their credit card doesn’t work, or when they’re travelling and not sure what they need from a banking perspective. We’ve morphed into that family relationship because we are everything to the client including the role of lender. Relationship management is at the heart of what we do and that applies to all ages.”

• It was commented on how important it is to get the right banker with the right client, and that this applies very much to the next generation, since the average age of current clients is so much older. The challenge within businesses as wealth is spread over 3-4 generations of managing money, is how that inheritance is kept from dwindling and whether subsequent generations are just going to take out the money and pay off debt – how sustainable is the relationship going forward in these circumstances? 

Demonstrating the power of the whole firm

• When servicing the next generations, how right will a 55-year-old relationship manager be for a 20-year-old beneficiary. Delegates agreed that it was important to show the benefit that the complete organisation can bring, rather than just one individual banker or RM, and encompass overall advice, so that the firm becomes a one stop shop, which can be very appealing especially to younger people. They are not necessarily up to speed on financial matters, just because they’re young, and the holistic approach can bring that sense of safety.
• Another delegate commented that one of their key differentiating strengths was a very low turnover in the front office - the longevity of bankers is very unusual if it goes into double figures in terms of years at most firms. If you assume that bankers don’t move, and they stay and look after their books, the steering of those bankers to ensure they engage as soon as possible with the next generation, and take a team approach is really important.

“We need to ensure that they present the firm to clients rather than just the individual. If the banker is doing the job well, they will be introducing all the specialists – a team approach – and playing to the strengths of individuals who are technically experienced, and this mitigates the age risk to a great extent.”

• Firms need to keep uppermost in their minds that their clients are older than average, so they need to read the signals and use common sense. It’s more about impact and education – who is responsible for that. When it’s done well, the results are impressive but it’s not necessarily something that can be done in a systematic way – firms need to come at it from all angles. 

Education at the forefront

• The discussion then moved on to the role of education. A lot of businesses use internships and work experience to educate the next generation, but a question was asked as to how the genuine understanding of what a client thinks and feels, and a more humanising approach can be employed to the relationship. A 65-year-old will be much more about the way their RM deals with them, but a 30-year-old will be more focussed on elements such as impact so how are their views being met?
• Delegates agreed that education was very important, and it was very positive that it was acknowledged as such. A delegate commented:

“One of my roles is to lead on family advice strategically, to ensure we have a close eye on the next generation and we are being helpful to them. It might be next generations in plural, children and grandchildren who need to have some prep and education. I’ve seen the figures for loss of assets through the second and third generations and often it’s not about taxes but very much about lack of preparation, family disunity and conflict so you get a loss of financial AND social capital.”

• The need to look holistically at the family, and the human aspects to help for long term strategic planning is so important. This is obviously a more viable business model if the firm has larger families but overall, those advisers that do best in the long term, are the ones with a longer-term strategic view of family capital. 

Diversity of advisers

• A delegate then raised the issue of whether firms have enough advisers across gender – in the US a piece of research evidenced that advisers are losing money at the point of inheritance, where female inheritors want a female adviser. This helps drive more diversity – but the stats in the UK for this within the wealth industry are not great either. One firm’s strategic move is focussed on attracting more female advisers and another delegate gave examples of two initiatives around leading business women and philanthropic strategies to promote women in business. Diversity can be pushed internally where acceleration programmes are implemented to get women promoted. Firms are doing a number of initiatives, but the brutal reality as one delegate pointed out was that while they wanted to attract female bankers, they just didn’t get the applicants with a 15:1 male to female ratio of candidates.

“With an average age of 50-60, senior roles tend to be held by men who are less enlightened about diversity. The initiative succeeds when you can partner male and female bankers, but it can still be an uphill struggle when the wealth is held in male hands. Things will look different in 20-30 years but until wealth is passed down to younger generations where it is the norm for females to go to work and start or run businesses.”

• The final comment came from a delegate who commented that the industry has always been heavily male oriented and while we are all aware of this, he would challenge the way we are promoting our industry to people generally and that it fundamentally needs to change.

“It is all still about investments rather than diversity, but we have a diverse client base. It’s a problem for my business. I need a more diverse business, so we are actively promoting the importance of diversity rather than tipping our hat to it and there is a clear need. The target should be to hire the best people, ideally should be split 49/51 and it would solve the problem and accurately reflect the gender of the world. A lot of wealth is in male hands, but often the influence surrounding the funds is outside.”

• It was agreed that ultimately it is about hiring the best people for the role, but delegates have seen very successful female bankers/advisers in regions such as the Middle East, and Eastern Europe, which don’t always come to mind as the immediate examples in this respect. Asia also typically sees a greater proportion of women covering Asian clients.
• It was clear that in order to create better diversity, the initiative by the industry needs to start much further back in the chain, rather than just at the point of hiring. Ending on this note it was also evident that there is more than just a generational divide to be tackled within the industry.