The Great Wealth Transfer, AI and technology's impact on RIA practices

Approximately $70 trillion will be inherited by future generations in the next 21 years in the Great Wealth Transfer, according to Cerulli Associates.

Advisors are well aware about this potential massive shift, but AdvisorEngine CEO Rich Cancro and Nitrogen CEO Dan Zitting said many are unprepared for this massive shift.

“The core thing to do is to make the next generation a client,” Cancro said. “It's not enough to be sitting around a table with the parents and the children,” added Cancro, who joined Zitting in a recent CEO roundtable about how RIAs can take advantage of trends, strategies, technologies and tools to grow their businesses.

Nitrogen’s 2024 Firm Growth Survey of over 1,300 RIAs found that only 19% of respondents had established a meaningful relationship with their clients’ children or inheritors, even though 97% acknowledged the importance of the generational shift.

“I'm very passionate about this topic. It’s happened in my life,” Cancro said. After his parents passed away,  the advisor his parents shared never tried to connect with Cancro. “That advisor had no shot at keeping those assets,” Cancro said. “We transferred those assets away.”

He cautioned: “If you’re not connecting with the next generation or generations and making them clients, you risk losing a significant portion of your assets. Your practice should be literally your best referral book.”

Cancro added it’s also important for firms to bring aboard younger advisors and other client-facing staffers so that there are people that the next-gen client easily engage with and believe will serve them for decades to come through their future life journey.

Investing in technology

Another key driver for RIA growth is the investment in and the use of technology.

“A lot of advisory firms treat technology as an expense, and of course, it is an expense, but it’s also a significant growth enabler if you get it right and work with the right partners and platform,” Cancro said.

Technology is key to many facets of an RIA’s business: the digital experience for clients; data analytics that help advisors personalize services; and workflows connecting advisors, their clients and the firm’s business operations staff. Also playing key roles are the automated workflows connecting multiple functions such as trade rebalancing, performance reporting, billing and compliance. All of those connections drive true fundamental scale for your firm, Cancro said.

Unfortunately, like the challenge of The Great Wealth Transfer, many RIAs are failing to maximize the use of technology to grow their business.

A recent AdvisorEngine survey of RIAs found that close to 90% of advisors view the digital experience as extremely important for client engagement, yet only 34% reported activating that experience, Cancro said. 

That failure risks losing potential clients and even existing ones.

Enhance digital experiences

The digital presence of an RIA is often the first connection a potential client, especially millennials and Gen Xers, makes with an RIA firm. The decision about whether they can trust a particular firm with their money — “a firms’ biggest asset for driving growth” — often happens during that digital interaction, well before they talk to anyone, Zitting said.

The Nitrogen 2024 growth survey found firms that set strategic objectives and use platforms designed to enhance the digital experience were more than twice as likely to achieve AUM growth greater than 21%.

Zitting recommends in addition to enhancing the digital client experience, RIAs use technology to develop data analytics to customize their message to prospects and clients alike and automation tools to drive efficiency overall and in the backend, including compliance.

“A majority of advisors want to use software to grow their AUM but may be under-utilizing their existing technologies that could streamline compliance and client engagement efforts,” notes the Nitrogen 2024 report.

Just 17% of Nitrogen's survey participants — primarily financial advisors and RIA executives — reported using compliance technology daily despite the fact that advisors called regulatory obligations the biggest threat to growth. Only 31% of survey participants considered personalized client engagement platforms a must-have.

“Before you onboard an expensive advisor and think that’s the way forward for growth, think about what technology would cost as a way to multiply that growth instead,” Cancro said. 

RIAs must also ensure new tools integrate well with their core platform and third-party tools. “It has to start there, versus investing in yet another set of technology that's potentially disconnected from everything else you're doing,” Cancro said.

That applies to AI as well, which could be the next big thing in an RIA’s technology arsenal. Cancro said he was excited about the potential these tools offer advisors to help scale their businesses, from efficiently serving their clients to speeding up their compliance tasks.

However, he acknowledged the technology is still in its infancy and to derive the most benefit the tools need to be integrated with the RIAs’ platform.

Personalize client relationships

Technology can play a key role to personalize an advisor’s interaction with prospective and current clients. With an analysis of that public data, an advisor can create a proposal targeted to that individual’s situation to not only win their business but remain engaged throughout that client's entire lifecycle, Zitting said.

“The ability to combine analysis with the amount of public data that's out there and do that in a relatively automated way to make it scalable is an easy way to make an RIA stand out,” Zitting said.

That personalization starts with a firm’s CRM, which contains lots of information about a client — such as their investing needs, family, goals, communication preferences and more.

“RIAs can use that information to drive their service level, not by telling clients what they will do for them but asking clients how they want to be served… how they want to interact [and how often], what they want to talk about, what they want to learn,” Cancro said.

Data quality and cybersecurity focus

At the core of personalization and any modern RIA tool is data. Both leaders challenged firms to examine how accurate and relevant their data is.

“How we serve our clients, how we scale our business, how we do compliance, all those things start with the quality of the data,” Cancro said. “You can have the best platform in the world, the best tools in the world, like an amazing data lake, but none of it matters if the data actually in there isn't accurate, timely and consistent. Everybody in the firm needs to be a data evangelist.”

Throughout it all, RIAs need to ask if they and their providers are doing all they can to protect their clients’ data.

Cancro said. “At the end of the day, a client has to trust you with their information."