Tabb Forum: The $18 Trillion Opportunity

By Alexey Sokolin and Rich Cancro, COO and CEO of Vanare

Every day industry experts warn how roboadvisors are disrupting the wealth management business. But what if instead of threatening traditional financial advisors, roboadvisors are actually a fortuitous and timely opportunity for financial firms? The reasons become explicitly clear once we analyze the dynamics of the coming intergenerational wealth transfer from Baby Boomers to their Generation X and Millennial children.

As in every industry, wealth management firms have to think about the future of their business and the creation of enterprise value. But only in wealth management does that future also contain a whopping $18 trillion of assets under management moving away from existing providers. What we know is that nearly 70% of managed assets are currently lost by advisors once their client passes away, since advisors do not focus on building trusted relationships with the children of their clients.

So how can advisors keep from losing such a large portion of their business?  

The answer is simple. Registered Investment Advisors (RIAs) must invest in the broader relationship and incorporate the needs of the clients’ children in the wealth management process. Though this may not be profitable today given the smaller size of the accounts, providing guidance early in the relationship is necessary to be perceived as a trusted party during the wealth transition. 

The challenge advisors face is in speaking the language of the next generation and engaging them on their own terms. Roboadvisors have been created with this specific goal in mind—to help younger people invest in a smart, automated way that is always accessible on any device. These tools are fast, transparent and collaborative.  They empower clients to learn more about their financial situation, understand their goals, and invest in diversified portfolios driven by a suitable investment philosophy. Advisors seeking to benefit from the coming intergenerational wealth transfer should see roboadvice as a tool to incorporate into their larger business practice. It is a technology-enabled channel through which the advisor can form relationships and deliver sophisticated, holistic investment solutions.  

Goals-based financial planning is also becoming incorporated into online platforms in order to deliver value beyond asset allocation. Advisors can drive collaboration by engaging their clients through technology and putting together a thoughtful financial plan that is interactive and dynamic. When clients reach retirement and look back on their life, they will not remember beating the S&P 500. Happiness and fulfillment will come from meeting their financial goals—paying off the mortgage, sending their kids to college, and saving for retirement.

The future is bright for the wealth management industry. There is an abundance of choice in investment and technology products, which benefits both the client and their advisor. As roboadvisors develop further, we certainly expect to see deeper functionality and features. Even more important will be a focus on community, affinity and social issues, which can be expressed through investment. By lowering the operational cost of doing business and simplifying the value proposition to clients, roboadvisors will allow RIAs to focus on the human side of the equation and scale their network like never before.