While connecting with the next generation of clients is a way to retain assets over the long term, the banks that successfully engage with this group will be those to approach them in a sincere and focused way
Succession planning in modern society has been in focus more than ever before, with the highly choreographed passing of the UK crown, royal palaces and associated responsibilities from Queen Elizabeth II to King Charles III.
The topic also makes great TV, with viewers hooked on HBO’s ‘Succession’, observing fictional patriarch Logan Roy’s failure to communicate with heirs about transfer of the Waystar Royco media conglomerate. Earlier generations were similarly transfixed by 1970s BBC series ‘The Brothers’, highlighting how love, betrayal and fast-shifting industrial relations practices could rip apart traditional family businesses.
It is a discipline wealth managers are realising they need to master. Sure, there are voices in the private banking world who believe succession planning is a “gimmick”, drawing business for second string firms, floundering in investment management.
But most commentators are convinced of its importance, if not the quality of execution. Estate and succession planning became a key topic of discussion at the height of the pandemic, with clients spending more time with families and addressing their mortality, according to Gerard Aquilina, partner at Monaco-based family office adviser Cone Marshall, who cites leading private bank UBS building a dedicated team for advisory and governance issues.
After all, discussing succession opens up a vast array of subjects with clients, well beyond the balancing of portfolios. Banks including Julius Baer, EFG and BTG Pactual have trained dedicated wealth planners to help bankers address these issues.
Yet these are the exception rather than the rule. Although there is gathering recognition that legal structure of an investment portfolio is becoming equally, if not more, important than its contents, there is parallel acceptance that reputational risk associated with this is substantial.
Some high-profile, risk-averse players, including UBS and HSBC, have been disposing of their trust businesses rather than building them. Private equity firms seeking substantial, dependable cash flow, have proved eager buyers, while smaller wealth managers have developed this expertise.
Tidal change
The importance of this business makes it a “smart investment” precipitating what Alois Pirker, head of the wealth practice at Boston’s Aite-Novarica Group, calls an inevitable “tidal change”. While connecting with the next generation is a wise and obvious move, helping retain client assets over the longer term, the move must be sincere, avoiding the terrifying naïveté displayed by most banks in their commercial and strategic approaches to this hot topic.
“The answer is not simply found by sticking young people in a room and observing them, nor is it by sticking the word digital or impact in front the offering,” reflects long-standing wealth consultant Seb Dovey, describing the popular ‘boot camp’ approach to next generation planning, alongside the establishment of digital departments, isolated from banks’ core structures.
He pleads for a more nuanced shift, despairing at today’s inept approach. “At this point, I struggle to see why many, or any, next gen would be drawn to most propositions,” he laments.
Evolving brands
Hand in hand with the business shake-up is a reshaping of brands deployed for cultivating next generation clients, says Helen Westropp, principal of the Delphi Marques branding consultancy: “Their expectations of how brands communicate and work are very different from that of their parents.”
Increased competition from fintech start-ups and the rise of cryptocurrencies mean traditional institutions are no longer automatically on the wish lists of young entrepreneurs and investors.
Customer experience – what banks love to call CX – is now dominated by non-financial digital brands like Google and Amazon, which have convinced on-the-move younger customers that they always need to be in control of their affairs. “Brands need to fit into their life, not the other way around,” insists Ms Westropp.
Millennials, who grew up immersed in online communities, valuing a group’s collective wisdom, the ethic of crowdsourcing, and a learn-it-yourself culture, now expect the same patterns from firms managing their finances.
They are more likely to seek out and collate opinions and views from multiple sources, allowing private banks to facilitate the conversation and provide platforms for investors to share their knowledge. This is a policy favoured by providers including Northern Trust and BNP Paribas.
Moreover, most members of next generations are adamant there should be no compromise between money management and personal moral values, with peer-group success of this cohort increasingly determined by their personal impact on the world, in addition to the growth of their wealth.
This means organisations with a clear sense of purpose are now their go-to preference. In the mass market, newer financial players, such as US insurance provider Lemonade, are incorporating their sense of purpose into their brands. Swiss stalwart Lombard Odier is one of few private banks able to emulate this success and apply it to the high net worth segment.The Geneva firm is also focused on its own handover of power, from wealth management guru Patrick Odier to his successor, Hubert Keller.
Succession planning – and consequently, how to work more effectively with the next generation – is something now on the radar of most wealth firms, unlike the populist politicians currently making headlines.
Since the clear – if slightly flawed – succession plan for transfer of responsibilities between Labour prime ministers Tony Blair and Gordon Brown, there has been no effective mechanism or success story for this in the UK. The latest fiasco of a handover of the reins from a discredited PM to an even more inexperienced leadership team, governed purely by ideology, has further highlighted the importance of planned, strategic succession.
Observers of political succession are hoping for a smoother transition to former chancellor Rishi Sunak.
For businesses, families and countries, shifting power from one generation of leaders to the next has become a key area of focus. Frequent failures in its management can have disastrous economic and social consequences.
