Technology and the succession disconnect between HNW next-gens and family offices

December 30, 2022 11:42 AM

A new study from BNY Mellon Wealth Management and Campden Wealth suggests that the next generation of the super rich is eager to take the reins with strong focus on future tech. But few family offices think they've got what it takes.

The study, "The Next Generation of Wealth Holders in the United States 2022," surveyed ultrahigh net worth individuals who have recently or will in the future assume control of the family wealth. Study respondents had a total estimated family net worth of $77 billion and an average net worth of $752 million per family.

Next-gens overwhelmingly indicate they are ready for succession in the family enterprise, with 85% reporting they feel either very or somewhat prepared, according to the study. But Campden Wealth's 2022 research on family offices suggest that a clear disconnect exists, with just 39% of family offices saying next-gens are adequately prepared for succession.

"Being in the midst of the largest wealth transfer in U.S. history, the next generation of wealth holders understand and embrace the gravity of this significant responsibility for a long-lasting family legacy," Rebecca Gooch, director of research at Campden Wealth, said in a statement. "They want to live up to their families' expectations and make a positive impact on the world but face challenges with a successful transition based on complicated family dynamics, understanding their role post-succession and the absence of a formally written succession plan."

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More than three-quarters of next-generation respondents say they're driven by a desire to diversify from traditional investments, and 70% want to invest in an area before it becomes mainstream. Respondents said there is also great value in investing in digital assets/new technology upon assuming control.

Within the next year, 60% of next-gens plan to increase their exposure to artificial intelligence and fintech, and 53% will do the same in the area of robotics. When it comes to cryptocurrency, those active in the space plan to stay committed, with more than half (57%) willing to maintain and 43% planning to increase investments in cryptocurrency.

"In line with the study, we have seen many of our next-gen wealth clients approach their investing strategy with a growth-oriented mindset and a profound sensitivity and passion for inclusion of sustainable investing," Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, said in a statement. "Next-gens are also breaking the mold from their parents' generation by embracing alternatives and new technologies but are being thoughtful and measured regarding the inclusion of digital assets in their portfolios."

The study also found next-gens showing an interest in easing conflict within the family enterprise. Two-thirds believe in the power of regular communication, and another 63% seek external support for their succession planning/wealth transfers. Despite respondents' eagerness to engage, their family members' roles and responsibilities and concerns over business strategy rank as the obstacles to a smooth wealth transfer.

Concerns about their preparedness aside, next-gens have an appetite for growth and shaking up the family enterprise. Once in control, 27% plan to shift toward alternative investments while another 24% want to integrate new technologies like blockchain and AI into the family office.

More than half of respondents surveyed (51%) believe one does not have to sacrifice returns to invest sustainably, and more than two-thirds (68%) assert that sustainable investing has become a permanent feature of the investment landscape.

Scroll down to get caught up on other recent fintech news you might have missed in our Wealthtech Weekly recap. And check out the previous edition here.

Docupace launches new productivity for advisors and RIAs

Docupace CEO David Knoch

Docupace

California-based fintech Docupace, focused on helping financial professionals on the move do so more efficiently, has launched a new RIA Productivity Suite for advisors and firms of all sizes.

In consultation with Ezra Group, Docupace has developed the RIA Productivity Suite with several "out-of-the-box" capabilities and integrations that meet needs of wealth managers looking to digitize, streamline, connect and automate their operations.

Docupace, which celebrated a milestone of more than a half million client transitions earlier this year, says the toolkit includes tools for account opening and client onboarding; a workflow engine with automated data validations; document management tools and embedded DocuSign solutions.

The RIA Productivity Suite also has CRM integrations with Redtail CRM, Salesforce, Salesforce Financial Services Cloud, Wealthbox and Practifi.

Docupace leaders said the toolkit was specifically designed to remove four significant barriers in the way of growth and scale for RIAs: streamlining client onboarding through automation, integrating systems and data, digitizing the client experience and reducing the cost of administrative work.

"While much of the financial services industry is a 'sea of sameness,' the RIA universe is vast and diverse," Docupace CEO David Knoch said in a statement. "For too long, this has resulted in an abundance of technology solutions for this market, and those available are too inflexible and too expensive. That stops now."

Advyzon releases 2022 billing and fee study

Photo by Tima Miroshnichenko/Pexels

Advyzon, one of Financial Planning's best fintechs to work for, is closing the year with the release of a new study and white paper focused on which fee models independent financial advisors are using today and why.

The fintech firm conducted the same billing study in 2021, sharing insights from more than 800 firms. The updated study analyzing 2022 data from more than 1,000 advisory firms using Advyzon explores the similarities and differences of the data a year later, breaks down aggregate data to show different approaches taken by firms of different sizes and shares how advisors using the platform have been taking billing into their own hands.

In 2021, Advyzon reported that roughly one in four firms offered a flat-fee option to clients. In 2022, that number has increased by approximately 15%. Today, more than 40% of firms managing more than $100 million in assets now offer some form of flat-fee option.

While one in four firms offering a flat-fee option surprised Advyzon last year, Charles Rowlan, senior vice president for business development at Advyzon, expected the increase this year. However, he doesn't expect it to continue growing at such a fast clip in 2023.

"I don't think flat fee is just going to suddenly go through the roof," Rowlan said. "I think it's just going to be a slow and steady increase, like we've been seeing."

With the S&P 500 poised to close the year lower for the first time in more than a decade, the study showed that advisors created more flexibility in their billing schedules and that personalization was one of the biggest trends of 2022. Advyzon saw advisors and consultants discussing the need to personalize offerings based on the client, which applied to portfolio management, client portals, email engagement and, of course, billing.

The data showed that the number of firms using multiple fee schedules jumped from 81% last year to 92% this year, with large firms in particular favoring custom billing.

About 95% of firms with more than $100 million in assets use multiple fee schedules. This could mean different advisors bill differently, or it could mean different plan offerings for clients. The study notes that one of the biggest advantages that wealthtech platforms provide is the ability to offer customization at scale, something they see advisors taking advantage of regularly.

The interesting thing about trends in monthly billing, notes Rowlan, is that it tends to be most firms' preference even if they aren't using it.

"A lot of firms prefer monthly, but they billed quarterly at their broker-dealer, they broke away, they started their RIA, and they just kept billing quarterly," he said. "While this can help ease the transition to a new billing system, since you (and your clients) keep the same schedule, it's not a foolproof system."

A more detailed breakdown of the trends seen in billing and fee models can be found in the viewpoints section on the Advyzon website.

Riskalyze, InvestorCOM partner to bring rollover compliance workflows to wealth management firms

Parham Nasseri, VP of product and regulatory strategy at InvestorCOM

InvestorCOM

Portfolio risk assessment software firm Riskalyze and compliance software firm InvestorCOM are joining forces to launch new wealth management tools in the new year.

Officials say the partnership will give advisors access to industry-leading rollover compliance workflows that include analysis of proposed rollover transactions, plan fee lookups and documenting recommendations, freeing up time for valuable face-to-face meetings with clients.

"We believe that a streamlined compliance workflow can actually be a differentiator and growth driver for firms," Clifton Schaller, managing director of strategic partnerships at Riskalyze, said in a statement. "Our strategic partnership with InvestorCOM will connect the Riskalyze growth platform with this best-in-class solution for ensuring rollover compliance, delivering sought-after workflow productivity and scale for the firms we serve."

As a result of this integration, advisory firms can start a proposal workflow within the Riskalyze growth platform and, upon selecting "rollover analysis," access InvestorCOM RolloverAnalyzer to seamlessly analyze and document best-interest rollover recommendations for clients.

Upon completion of this component, which ensures full compliance with recently introduced Department of Labor requirements governing retirement plan rollovers, advisors are automatically redirected to Riskalyze to complete the proposal and close new business.

"Rollover recommendations have been attracting greater regulatory scrutiny, and advisors need to stay ahead of the evolving regulatory environment. This partnership reduces compliance risk while delivering a client-focused solution," Parham Nasseri, VP of product and regulatory strategy at InvestorCOM, said in a statement. "Riskalyze's platform and market reach will foster greater awareness and adoption for our award-winning RolloverAnalyzer solution."

Firms can leverage both products today, and the new workflow integration will enter general availability in the first quarter of 2023.