For years, businesses have been discussing the changes in consumer behaviour as younger generations become decision-makers; the same is true for wealth and investment management. As baby boomers retire and pass away, a new generation made up mainly of
millennials find themselves in positions of authority when it comes to financial decisions. One of the most interesting discoveries is from a study conducted by McKinsey on the largest wealth transfer in history – by 2030, American women will likely control $30 trillion of inherited financial assets from baby boomers.
The New Age of Wealth
The financial services industry has been male-dominated
for so long, and although there have been many efforts to make the space more inclusive and equitable for female employees, the same effort has not been made on client-facing practices. However, as this shift happens within this decade with widows
and daughters inheriting and becoming responsible for large amounts of wealth, the industry must catch up with the other half of the population. In the biggest opportunity in history, how wealth managers and advisors understand the investing needs
of their female clients, will define their success in this new age of wealth.
What Do Women Want?
The data reveals that women align their financial objectives with their real-life goals, require more involvement and advice from their money manager, often have not been given the same level of financial access as “the boy’s club,” and are more risk-averse than their male counterparts. The level of preparedness for heirs varies regardless of gender, but it is no surprise that in this context, women largely do not feel like they have been brought into the fold ahead of their inheritance – whether it is inherited from a spouse or parent. This is a gap for investment advisors and wealth managers to fill, by proactively engaging with the client's family network to ensure long-lasting relationships through generations.
In terms of client relationship-building, traditional engagement practices in the industry have always skewed toward male preferences and friendships. However, the great wealth transfer will challenge some of these traditions as money managers will find themselves under the scrutiny of discerning women who seek a comfortable “personal fit” with their investment advisor with an emphasis on mutual trust and respect. This opens the room for advisor turnover as heirs seek out the right relationships for their money management needs and look for inclusive managers who understand their goals and find ways to continue adding value, not just to the portfolio, but to other aspects of the client’s financial eco-system.
DE&I in Client Relationships
In the same way that ESG factors are embedded into investment decisions and a firm’s own employee practices, a third lens will become more important as women take the reins of financial decisions. Similar to how an investor might consider the
diversity, equity, and inclusion practices of a potential opportunity, future investors will want to know how managers will have their best interest at heart, with a diverse workforce that can relate to the recipients of the greatest wealth transfer,
as well as equitable and inclusive practices that make both employees and clients comfortable with building long-term relationships.
The Future is Female
The future is female, and the future of wealth and investment management relies on the financial industry’s ability to bridge the gap between current male-oriented practices and the goal- and lifestyle-oriented service that women are seeking. With about 70% of women inheriting wealth likely to change their advisor, bridging the gap is now more important than ever.
Ways to bridge the gap:
- Re-evaluate your value proposition – are you providing value for the differentiated needs of your female clients? A more diversified service offering that includes partnerships with other experts and educational
resources could help heighten the quality of the client relationship.
- Work in partnership – The data shows women preferring higher-touch advisory relationships, and becoming their cheerleader during a time of transition, can provide the level of comfort and “fit” that
female investors and seeking with their advisors. Understanding their goals and working with them to reposition their financial assets for success go a long way.
Building trust and understanding with this new demographic of financial decision-makers cannot happen overnight when the money passes hands – it must be an ongoing conversation that is inclusive of varying levels of financial knowledge and needs.
By addressing the concerns of future decision-makers today, managers can be better equipped to understand and help investors meet their goals tomorrow.
The information herein is presented by RP Investment Advisors LP (“RPIA”) and is for informational purposes only. It does not provide financial, legal, accounting, tax, investment, or other advice and should not be acted or relied upon in that regard without seeking the appropriate professional advice. The information is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does RPIA assume any responsibility or liability whatsoever. The information provided may be subject to change and RPIA does not undertake any obligation to communicate revisions or updates to the information presented. Unless otherwise stated, the source for all information is RPIA. The information presented does not form the basis of any offer or solicitation for the purchase or sale of securities. Products and services of RPIA are only available in jurisdictions where they may be lawfully offered and to investors who qualify under applicable regulation. “Forward-Looking” statements are based on assumptions made by RPIA regarding its opinion and investment strategies in certain market conditions and are subject to a number of mitigating factors. Economic and market conditions may change, which may materially impact actual future events and as a result RPIA’s views, the success of RPIA’s intended strategies as well as its actual course of conduct.
RPIA aims to consider ESG factors as part of our overall investment process, but the weight and importance of it can vary across the investment funds we manage. Always refer to the relevant fund offering documents for important information on the investment objectives, strategies and associated risks of a particular fund. The consideration of ESG factors in the investment process for RP Strategic Income Plus Fund and RP Alternative Global Bond Fund plays a limited role and is weighted less than the core financial and credit analysis employed in the management of these funds.
For more information, visit www.rpia.ca/esg.