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PCBB Banc Investment Daily July 09, 2014
Banc Investment Daily
July 09, 2014

Winning Intergenerational Wealth

Powerball is extremely popular across the country and even into U.S. territories. Thousands of people participate in this multi-state-sanctioned game of chance. There have also been more than 600K winners and more than $9MM paid out in non-jackpot prizes to lucky individuals. A person can enter the drawing for as little as $2 and the overall odds of winning a prize in the game are around 1 in 32. That said, the chance of winning the big prize is greater than the likelihood of being struck by lightning in your lifetime so it is still a long-shot.
Given the enormous wealth transfer that's expected to take place over the next several decades, some banks may have their own jackpot to look forward to. This one also probably has much better odds than Powerball. In fact, a new report from Boston College estimates $59T will be divided among heirs, charities, estate taxes and estate closing costs from 2007 to 2061. Of this, it is predicted that heirs (through estates) will receive $36T.
Now consider an estimate from Cerulli Associates that states at its peak between 2031 and 2045, 10% of total wealth in the U.S. will change hands every 5Ys. This presents a huge opportunity for well-positioned banks to make a power play. The question is during this massive change, how can community banks best compete? There are hundreds of thousands of financial providers that will certainly be chasing customers or have skin in the game.
There are, of course, multiple ways you can position yourself to make a dent in the wealth transfer market, but the sooner you get started the better. This may involve beefing up your bank's trust department, joining forces with an investment advisory arm or offering targeted savings accounts to name a few. There are lots of options with a little deep thinking and a good white board, so take some time and grab a good group from the bank to think about this opportunity in order to best leverage it.
As you try and maneuver in this space, it's good practice to also segment customers. For Boomers, you're probably going to want to take a family-oriented approach. Among other things this means talking to your clients about wealth transfer and involving their children too, as appropriate. Generally speaking the ultimate transfer will go more smoothly if both sides understand the timeline and expectations. Plus, when the children know and are comfortable with you, they are more likely to want to keep their accounts with you in the future. You may even find ancillary opportunities to cross-sell products and services.
If you are targeting younger customers, you might consider hiring employees around the same age to help foster trust and cement bonds. While these relationships may not be immediately profitable, if you don't nurture them early on, there will be little chance of bringing in inherited dollars when the family money becomes available. The stronger the ties you develop now, the greater the chance you'll prevail in the future over their parents' financial advisor or bank.
Opportunity abounds for community banks to compete when it comes to the windfall of wealth transfer that's expected over the next several decades. This means not treating wealth transfer as a game of chance. To win, you must devote time, energy and resources because just like the lottery - you can't win if you don't play. Have fun with this and enjoy playing.