Identifying Value in the Great Wealth Transfer

In this two-part series, we dig into the ongoing Great Wealth Transfer and the impact and opportunities it will introduce. Part I, “The Wealth Management Opportunity for Banks”, illustrates how banks are uniquely poised during this period of rapid change to offer wealth solutions that increase loyalty, create new revenue streams, and allow them to capture substantial portions of a once-in-a-generation wealth transfer. Part II, “Identifying Value in the Great Wealth Transfer”, addresses how players can capitalize on the opportunity through the lens of three distinct pillars – marketing, movement, and management.

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With more than $80T set to change hands over the next two decades as the Silent Generation and Baby Boomers pass wealth down to their scions, there is a historic opportunity for players operating in the wealth space. The Canapi team is fascinated by the magnitude of the dynamics at play; in thinking through where value will accrue in the space, we segment the opportunity into three distinct “Pillars”:

In this piece, we’ll dive into each of these pillars, exploring areas that we believe are most ripe for disruption and value creation. Additionally, we finish with a market map that identifies key functional areas in our “Three Pillar” model and flags representative companies building in the space. While not exhaustive, we hope that our framework and market map serve as valuable compasses, aiding stakeholders as they navigate the Great Wealth Transfer.

Marketing to the Emerging and Mass Affluent

For banks, RIAs, and fintechs – we’ll refer to them jointly as “wealth aggregators” – the race is on today to market new solutions and win customer loyalty to ensure they are well-positioned to capture wealth once it changes hands.

We think the marketing phase hinges on repositioning “wealth management” to apply to a broader solution set, implementing strategies that enhance a platform’s brand and building wealth-style relationships well in advance of customers receiving inherited wealth.

INTEGRATING CONSUMER WEALTH OFFERINGS

Today, consumers manage their own finances across a broad array of bank, fintech, and technology solutions that solve several specific objectives: banking, brokerage, investing, estate planning, tax preparation, retirement planning, charitable giving, etc. When the bi-weekly direct deposit hits the bank account, most consumers catapult that money out into many different directions, personally investing and managing their finances.

To remedy this, would-be wealth aggregators need to reposition themselves as a wealth partner and digital advisor to consumers rather than just another node in the consumer wealth stack. We’ve written about this before: you do this by embedding, white-labeling, partnering, and distributing as many of the services that consumers regularly use as is possible.

In addition to unlocking potential fee streams and useful data on the customer, this approach has the subtle benefit of conditioning the consumer to manage their wealth on that platform. While it may seem like a disconnected series of value-added services, in fact the aggregator is marketing an integrated wealth solution, giving the consumer a taste of what a full-fledged wealth advisory offering will feel like once they have the wealth to require one.

DEFENDING THE FLANK

When wealth changes hands in the US, over 90% of it also changes institutions, per research from Cerulli Associates. For companies with large, existing wealth platforms, a key focus area in the marketing phase should be on “defending the flank” or ensuring that they do not lose their assets as existing clients begin to pass their wealth down to younger generations.

Expanding access to scalable wealth services is an effective way to ensure asset continuity between generations. Inheritors who do not meet the wealth thresholds for full advisory services could benefit from low-cost options such as PFM, estate planning, and direct indexing, bundled into a complimentary “family office” suite. The success of these services hinges on scalable digital solutions, necessitating collaborations with new vendors and tech stack updates, presenting numerous opportunities for both startups and established vendors to broaden their offerings.

IMPLEMENTING A FEEDER MODEL

In large financial institutions for whom wealth is just one part of a broader constellation of offerings, another marketing strategy is to “feed” the wealth management arm from other business units. Any external touchpoint can become a point of sale for a broader wealth offering.

This could be a mortgage process, a direct brokerage account, or an SMB customer that is looking to liquidate. Any reliable signal a wealth aggregator can unearth from their existing customer base will keep their advisors happy with a steady stream of leads and position that aggregator as a clear best choice to manage that client’s wealth.

UNLOCKING VALUE IN DATA

Underpinning all these marketing tactics is a robust data strategy that will be a sharp departure from most current approaches. Many legacy institutions have fully or near-fully siloed business units, often running individual businesses on separate CRMs, core systems, and procedures. This is a massive opportunity ripe for data-minded operators to unlock and we expect this segment to be a major area of focus in the years to come.

Moving $80T of Wealth

Per Federal Reserve data, more than half of America’s transferrable wealth sits in equities or real estate, with an additional $10T locked up in private business ownership and $20T spread across durable assets and other goods.

In the coming years, tens of trillions of dollars’ worth of homes, small businesses, stock portfolios, real estate, physical goods, and sundry other stores of value will need to be catalogued, appraised, liquidated, and moved. The scope of the services and number of professionals needed to move it is correspondingly immense.

HOW IT WORKS TODAY

• Initiation: Upon death, the will enters probate and an executor is designated to over see the estate
• Asset Assessment: The executor conducts a thorough valuation of assets, often with the aid of professional appraisers
• Debt Settlement: Concurrently, the executor settles outstanding debts, including mortgages and taxes, which adds complexity
• Trust Management: If trusts are involved, though trust inheritors avoid probate, a successor trustee may be required, requiring additional legal and financial expertise
• Asset Liquidation: Based on liquidity needs and the will’s directives, assets might be sold through agents, brokers, or auction houses
• Distribution: The final step involves distributing assets to heirs and beneficiaries, strictly following the will, trust directives, or state law in interstate cases
• Tax Compliance: Estate and inheritance taxes are assessed, necessitating the expertise of tax professionals to navigate potential complexities

All told, completing this process for a single family can take hundreds of hours, involve dozens of professionals, and cost tens of thousands of dollars. The sheer volume of assets moving through estate administration over the next two decades will place even further strain on existing infrastructure. We believe meaningful value will accrue to platforms that alleviate that strain through automation and digitization.

HOW IT COULD WORK IN THE FUTURE

An obvious starting place is estate planning. Emerging platforms like Trust & Will, Wealth.com, Just in Case Estates, and Vanilla offer fully digital estate planning solutions, making it significantly easier to manage estate plans, identify key stakeholders like executors and beneficiaries, and collaborate with professionals like accountants, attorneys, and advisors. Not only do these solutions eliminate pain and frustration for customers, but they also unlock significant value for financial advisors that use them to engage with clients and gain a 360-degree view of their finances.

Valuation and assessment can be dramatically improved by applying new technologies to the process. On the real estate side, established names like Zillow and emerging startups like Plunk offer powerful automated valuation models (AVMs) that can assess home values without the need for on-site appraisers or brokers. A growing ecosystem of “Office of the CFO” platforms like SaasWorks or Pigment could use their knowledge and access to financial data to provide a similar solution set for valuing private businesses. Digital auction houses like Masterworks or Alt could obviate the need for a lengthy appraisal process at Christie’s or Sotheby’s. Similarly, promising new debt infrastructure players like Method or Clerkie could streamline the cumbersome debt settlement process.

Liquidation of these assets will present an immense economic opportunity for players providing brokerage or advisory services. Digital auction houses stand to benefit significantly if they can help estate administrators in both valuing and selling assets like fine art or rare collectibles. New online SMB marketplaces like Beacon or Private Market Labs will dramatically improve the sale process of small business interests.

Inheritors will be inundated with tax considerations; advisory relationships will be won or lost on their ability to effectively manage their clients’ tax obligations. For inheritors that are creating a trust or inheriting a trust, legal advice and trust management platforms will also be of utmost value.

While each of these processes constitutes large opportunities unto themselves, the biggest prize will go to the platforms that are able to wrap all of that up into an end-to-end offering. Next-gen estate admin platforms like Alix, Estateably, or Trustate offer software that helps wealth professionals manage the workflow and process of estate administration, enabling platforms to deliver clients a truly integrated experience.

To be clear, “integrated experience” is not meant to suggest that winning platforms need to offer all these products in-house. Estate administration is, fundamentally, a process; platforms that can define themselves as a partner through that process - and supply the workflow, collaboration tooling, and support required to make a painful time at least a little bit easier – will be big winners in the upcoming wealth transfer.

Managing the Next Generation

The Great Wealth Transfer also creates opportunities for firms that can modernize wealth platforms to meet the demands of younger clients and advisors. Millennials and Gen Z expect seamless digital experiences, on-demand support, and investment options that align with their values and interests.

While traditional client perks may still have their place, the new generation of wealth clients will place a higher value on things like community, education, and ethical alignment. Similarly, the next wave of financial advisors will be tech-savvy and value-centric, expecting work places that mirror these traits. Firms that can successfully respond to these changing preferences will thrive in the post-wealth transfer world.

INTEGRATED DIGITAL EXPERIENCES

Digital experience will be a key part of managing the next generation of wealth. Accenture research shows that approximately 60% of Millennials would switch advisors just for better technology. Upgrading the client experience will require loads of investment and create meaningful opportunities for infrastructure providers and wealth platforms that are quick to roll them out.

Best-in-class offerings will include integrated dashboards that allow clients to see the whole of their financial picture in a single place. Empower’s acquisition of Personal Capital is a great example of this at play, but new providers like Mesh, as well as larger incumbents like MX, offer the tooling to build powerful personal financial management (PFM) experiences for consumers in-app. 

To make the digital experience feel integrated, wealth platforms may need to revamp their core systems, building a flexible base layer that makes it easy to plug in incremental products and solutions. Many existing wealth companies rely on legacy technology providers like Orion and MoneyGuidePro. While these platforms have been good solutions for serving an older generation, modern, cloud-native, API-first tooling that is intuitive to use and lends itself to a clean front end will be in high demand in the coming years. WealthAccess and BridgeFT are great examples of companies enabling these transformations without fully ripping out existing systems; we anticipate the “wealth core” to be an increasingly important area of innovation and investment in the near future.

Modern, tech-first RIAs like Farther provide an instructive example of the opportunity at hand: by building a flexible, modular platform, Farther has been able to quickly add new features, deliver a beautiful digital front-end to its clients and advisors, and in just a few years’ time, grow their AUM to ~$2B. In addition to the direct wealth management opportunity, Farther and its peers will have the ability to license their end-to-end tech stacks to other RIAs and banks, expanding their margins and addressable markets over time.

Finally, younger clients will want to engage with communities and information they can use to become better educated about their finances. This can take the form of online forums, regular events, original content – anything that younger users resonate and engage with beyond their own individual investing will be quick to aggregate value in the coming years. Platforms like Arta, Alinea, and Atlas are great examples in this segment.

COMPREHENSIVE INVESTMENT OFFERINGS

Compelling research suggests that younger generations will demand different and broader offerings from their wealth managers. Accustomed to having a wide range of options at their fingertips and less excited about traditional investing strategies, younger generations are expected to demand access to sustainable investments and opt for investing strategies that rely more on alternative assets and exotic products than did previous generations.

Alternative asset investing has nuanced requirements that many wealth platforms are not equipped to manage today: tax documents, capital calls, distributions, and private market portfolio balancing will all need to be handled by advisors in a way that scales. Early-stage companies like Allocate, Gridline, Arch, and Canoe are seeing strong initial traction. We expect platforms like these to become critical infrastructure as clients demand more alternative investments in their portfolios.

Beyond alternatives and sustainable investing products, wealth platforms will want to expand their offerings into newer solutions that drive better returns for customers and empower their advisors to attract new clients. This is a relatively broad category, but we’ve come across interesting solutions from OpenYield, Moment, Halo, and others across fixed income, structured notes, exotic products, and more. Infrastructure plays like these will expand advisor offerings, allowing them to charge more than they otherwise could and unlocking significant value for the platforms that enable them.

ACQUIRING AND RETAINING ADVISOR TALENT

To thrive in the evolving wealth landscape, firms will need a new generation of advisors who resonate with younger clients. As capital shifts, top advisors will have multiple platform choices and will gravitate towards those that help them grow their portfolio. Key attractors will include all the things we discussed above, as well as compensation and benefits on par with other industries and solutions that enable advisors to scale their client base efficiently.

Successful wealth platforms will understand that the new generation of advisors brings a shift in expectations regarding workplace culture, benefits, and compensation structures. Unlike their predecessors, who primarily considered opportunities within traditional finance sectors, today’s advisors are likely to also consider roles in technology sales and business development. To attract and retain top talent, firms must not only modernize their organizational culture, but also collaborate with leading benefits providers. This strategy is essential to offer propositions that are competitive with, or even surpass, those of major tech companies and dynamic startups.

Productivity tools and knowledge management platforms that enhance advisors’ outreach and client service quality will also bein high demand. Companies like VRGL, CapIntel, WealthAccess, and Cashmere in the proposal automation, integrated lead-gen, and back-office support verticals will similarly see higher inbound interest. We are also excited about plays in next-gen CRM, robotic process automation (RPA), and generative AI for client communications. There are many possible approaches, but the key takeaway is that solutions that arm advisors with the tools they need to succeed will be increasingly sought after as firms fight for top advisor talent.

Investing in the Great Wealth Transfer

The scope of opportunity the Great Wealth Transfer will bring can be difficult to envision. Our “Three Pillars” framework seeks to capture the core value pockets across three distinct phases of the transfer. While this is by no means comprehensive, our market map below should be instructive in illustrating how we think about key functional areas.

In Marketing, we contemplate solutions that help wealth aggregators engage with a younger generation of potential clients as well as build new top-of-funnel prospects and maintain relationships with existing clients. In Movement, we look at the platforms and technologies that are enabling a more streamlined estate settlement process and identify several non-wealth tech players who may over time carve out a large role in the transfer. Finally, in Management, we consider the tooling and systems that will help wealth managers level up their offerings to more effectively deliver what younger generations will demand from wealth platforms.

The unfolding narrative of the Great Wealth Transfer is not just about wealth changing hands; it is about talented builders and innovative minds crafting the future of financial services. This is core to what we do here at Canapi, and we continue to be energized by the sheer scale of the opportunity. If you are operating or investing in the segment we would love to chat.