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Wealth 3.0 “SWOT” For Advisors

By Press ReleasesMarch, 2024March 8th, 202410 min read

The author of this article – a family enterprise advisor, author, lecturer, tech entrepreneur and nascent family office principal – took away a set of ideas from a symposium in New York. Here’s what he learned.

The following article comes from David Werdiger, who describes himself as “a family enterprise advisor, author/speaker/lecturer, former tech entrepreneur, nascent family office principal.” His article stems from a UHNW Institute symposium held in November last year (in which Family Wealth Report was involved as exclusive media partner). 

We are very pleased to share these insights from Werdiger and, of course, welcome any responses. Jump into the conversation! You can email tom.burroughes@wealthbriefing.com. Remember, the usual editorial disclaimers apply to views of guest writers.

Remember the Great Wealth Transfer? You know – all those retiring Baby Boomers and the trillions of dollars that were going to be controlled by their children? The impact on advisors was expected to be significant – from the need to engage with a rising generation with different attitudes to their parents, to the risks of being dumped for being “our father’s advisor.” While the wealth transfer has been taking longer than expected, the effects are being felt by the advisor community. Not many firms have undertaken a systematic assessment of the risk of this generational transition. Indeed, the industry has largely been operating in a certain way for the past 20 to 30 years, in the false belief that things will largely stay as they have been. In the meantime, a group of family wealth advisors from a leading think tank have been thinking big about how advisors can more effectively serve families of significant financial capital.

About Wealth 3.0
This story starts with the UHNW Institute, a nonprofit think tank and learning exchange seeking to raise the wealth management industry to a new standard so that families and their advisors can have more meaningful and multigenerational relationships. Three senior faculty members from the Institute have published Wealth 3.0 – a clarion call for a new approach by advisors to ultra-high net worth families.

Over the past few decades, in what they describe as Wealth 2.0, the advisor narrative has been (a) based on fear and negativity, and (b) dominated by the financial aspects of family wealth. The adage “shirtsleeves to shirtsleeves” has been branded a “curse” and used to strike fear in the hearts of family incumbents: spoil your children and they will lose it all. But it is not a curse – rather a statement about how different generations relate to family wealth. And one of the most quoted statistics about the survival of family business – that only 30 per cent of family businesses make it to the second generation etc. – is based on flawed research that has not been replicated.

It’s time for both of those narratives to be disrupted. The negative tropes need to be discarded: family wealth can, in fact, keep families together and bring benefits to society. We should stop conflating family business with family wealth – they are different and need distinct approaches. And the focus of family wealth advisory needs to widen and consider the other forms of family capital behind the financial: a family’s human capital, its knowledge, networks, and purpose. A more integrated advisory approach draws on the Institute’s Ten Domains of Family Wealth model, and is articulated in the acclaimed paper The Rise of the Integrated Advisor.

Why it matters
This is the call of Wealth 3.0. The wealth industry is shifting. This is not just about “alts” and large allocations to illiquid asset classes. It’s not just about the rising generation’s different approach to investment and impact. Rather, it’s a major “upgrade” to the way advisors serve families. As an advisor, are you ready for this?

One way to find out is to do a “SWOT” on your advisory practice: examine your internal strengths and weaknesses in the context of this emerging trend, and the external opportunities and threats that will come with it.

Strengths
These are the internal capabilities that you will be need to leverage and build upon to be an effective advisor in this new paradigm.

While the idea of integrated family advisory is very important, there is no expectation that every advisor will transform into a generalist. Nor will there necessarily be a wave of M&A that will bring together disparate disciplines such as wealth management, law, and family dynamics into fully integrated advisory firms. There are levels of integration, and some firms may choose to stick to their lanes. If they do, they will need to develop existing collaboration skills. Practitioners may also need additional training in other disciplines – not to become experts but rather to know enough about adjacent and complementary disciplines to know when to bring in outside help. In a time of great change, the species that survive are not the strongest or the fastest, but rather the most adaptable.

The key strengths you will need in Wealth 3.0 are: collaboration, learning, and adaptability.

Weaknesses
Some firms are overly protective of their client relationships to the point of blocking other professionals – even if their expertise is different and non-competitive – for fear of losing a client or weakening their standing with the client. Some firms purport to offer a full suite of services to clients when in fact they are very strong in one of two and mediocre in others (or dismissive of their importance).

Wealth 3.0 demands that advisors increase the emphasis on what is best for their clients. Family clients often have complex needs that cannot be met with a single firm, or in an environment that is overly competitive between firms that are servicing the same client. The client will often be better served by the mix of providers that meet their needs. That is a reality that firms need to accept. Would you rather have a larger “share of wallet” with a client that is not being served well and is therefore at risk of leaving, or a smaller share but a sticky client who loves you for what you do? It’s time to think about customer lifetime value rather than margin maximization. This is especially true for clients with generational wealth who in theory could be with you as a client for decades.

The weaknesses you will need to address are competitiveness, short-termism, and zero-sum game thinking.

Opportunities
In any industry going through disruption, there are opportunities both for incumbents and startups. For incumbents there is an important decision regarding what level of integration they seek, and with whom they will choose to form alliances. There may be some M&A as firms seek to bring capabilities in-house rather than collaborate and look for economies of scale. We are a long way from understanding what service models are optimal both from a client and a firm perspective, and indeed there may not be any single “optimal” or “best practice.”

Larger advisory firms that are slow to adapt may be disrupted by startups, built “from the ground up” to serve clients using approaches inspired by Wealth 3.0. Such firms already exist.

The industry opportunities will likely be around collaboration and partnerships.

Threats
Mike Tyson famously said: “Everyone has a plan until they get punched in the mouth.” Wealth 3.0 is a call to the industry, not yet a fully developed client engagement strategy. As such, the industry will be in a state of flux for a period of time as firms and advisors consider how to take aspects of this new paradigm, and families consider what changes if any they should make to how they are served. 

This is happening in parallel with a significant wealth transition, which means that rising generation family members are coming to the table with their own ideas about how things should be done. In some cases, there is a deliberate push against incumbents simply because they are “my father’s advisor.”

While you might think the threats are coming from competitors of all shapes and sizes (see ‘opportunities’ above), perhaps the biggest threat to look out for is from your clients. Between the inherent churn risk of the rising generation, and the greater awareness of the need to nurture non-financial family capital, clients may be looking for more. Understanding your clients more deeply as family systems (not just the people you deal with) may help you assess their broader needs as well as their risk of leaving.

The most challenging threats often come from where they are least expected.

Putting this into action
When faced with the prospect of significant change, some firms devolve into a flight/fight/freeze response: a hurried response (“quick, let’s …”), defensiveness or denial (“there’s no way our customers will just leave us like that”), or paralysis by analysis (“let’s conduct another review”). They would be better served by a process that helps them navigate through the changing environment. While a SWOT like this is a good place to start, it’s just that: the start. Firms will need to be proactive and decisive regarding what to do next. Frameworks like start/stop/continue will be helpful, as well as a good hard look at remuneration policies. The behavior you get is the behavior you reward, so the key to changing how you do business is changing how you reward your team members.

It’s still early days in the Wealth 3.0 journey. One of its calls is for better industry research, and one area will be research about advisory firms. If you want to participate in a longitudinal study of how firms are responding to Wealth 3.0, please contact this writer.

Conclusion
The only constant thing in life is change itself. If your relationship with your client is transactional and shallow, then it is at risk. Families of significant wealth think not in timeframes of five years, but 25 years or more. If your firm wants to remain a good fit with your clients, they you need to think more like your clients.

ForthcomingEditor Tom Burroughes of Family Wealth Report is joining language strategist Michael Maslansky in conversation to discuss how firms and family members are thinking about the Language of Wealth, how it may evolve and how capturing stories of wealth creators and beneficiaries might change the greater narrative.

This was originally posted at [familywealthreport.com].

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