The (entire) financial services industry is faced with two impending challenges that will undoubtedly hit institutions, advisory firms, and advisors like a freight train if they remain unprepared or so choose to ignore them.
Both issues deal with the aging population and significantly impact both the current and the future state of wealth management—along with what it means to provide not only an elevated (digital) client experience but an experience that is optimal for your clients and to protect their future.
It’s critical for firms and wealth professionals to not only acknowledge the significance of these issues but also to work closely with industry peers and solution providers to overcome their challenges.
The Aging Population & Dementia Are on the Rise
Let’s talk statistics.
Over the next decade, U.S. demographics are projected to transform. According to the U.S. Census Bureau, the entire Baby Boomer generation will be over the age 65 by 2030, which also means that 1 in every 5 Americans will be of retirement age. As an institution and especially as a wealth advisor, how will you protect your senior clients?
Additionally, according to the World Health Organization, Dementia sufferers are projected to rise in numbers to an alarming 78 million by 2030 and 139 million by 2050.
We know first-hand that wealth management firms and financial advisors are beginning to feel the stress of whether their aging clients are beginning to show early signs of Dementia or not.
The stark reality is that Advisors are not equipped to make a proper assessment and nor should they be. However, to make things worse, many of the current systems and methods used to protect clients, their information assets (Documents), and importantly their financial assets, are instituted as reactive measures.
A proactive step for both senior clients and for those showing signs of Dementia would be to establish a Trusted Contact. While your client may have an existing power of attorney (POA), a Trusted Contact serves as an extra resource for prompt and decisive action in cases of diminished financial capacity or potential fraud.
What is a Trusted Contact?
A Trusted Contact is a contact designated by your client, granting them the authorization to communicate on your client’s behalf, covering the following:
1. Confirming your client’s current contact details.
2. Discussing your client’s mental or physical health status.
3. Addressing activities or potential signs of financial exploitation.
4. Handling other allowable circumstances under the law.
It’s crucial to distinguish that Trusted Contacts do not act as representatives with the same authority as individuals holding POA or Durable POA.
Your client can choose any person who is at least 18 years old to be their Trusted Contact. Encourage them to select someone not already authorized to handle their affairs or receive information. Typically, Trusted Contacts are family members or close friends—individuals your clients trust and who are likely to be familiar with their current situation, as opposed to financial advisors or those with power of attorney (POA).
It’s vital to have both a Trusted Contact and someone with POA because, unfortunately, 90% of elder abuse cases involve family members or close associates. Remind your clients to keep this information up-to-date if circumstances change.
Regulatory Obligations: Trusted Contact Persons (TCPs)
FINRA Rule 4512(a)(1)(F) (Customer Account Information) requires firms, for each of their non-institutional customer accounts, to make a reasonable effort to obtain the name and contact information of a Trusted Contact Person (TCP) age 18 or older. FINRA Rule 4512 also describes the circumstances in which firms and their associated persons are authorized to contact the TCP and disclose information about the customer account.
Similarly, in July 2021, the Canadian Securities Administrators (CSA) introduced new guidelines that now require registrants to take reasonable steps to obtain the name and contact information of a Trusted Contact Person (TCP). This TCP would be someone advisors could alert if they have concerns about a client’s ability to make financial decisions or suspect their client is being exploited. This TCP would help advisors protect a client’s financial interests and assets. It’s important to note that a Trusted Contact Person does not have the authority to make transactions on a client in question’s account.
Protecting Your Clients with Trusted Advisor (Contact) Permissions in FutureVault
However, technology, such as Digital Vault solutions, exist to protect client information and documents, while enabling clients and Advisors to provide secure and trusted access to family members and third parties as a way of not only keeping confidential information safe but also sharing it with the right individuals, at the right time (and for the right amount of time via time-bound permissions) should they need access to critical information.
Dementia is incredibly difficult for everyone involved; including financial advisors and fiduciaries. Tackling this issue at hand proactively checks off assurances and provides Advisors with the confidence they need to continue providing sound advice.
The Great Wealth Transfer
The second very real and impending issue facing the industry is the intergenerational transfer of wealth, also known as The Great Wealth Transfer.
This mass movement of wealth transferring to younger generations is going to massively shake up the entire industry. Perhaps one of the most alarming factors impacting traditional wealth management firms is what we know about The Great Wealth Transfer with a reported more than 70% of heirs looking to fire or change financial advisors after inheriting their parents’ wealth according to Cerulli Associates.
For Financial Advisory firms and RIAs, Broker-Dealers, Family Offices, Credit Unions, Banks, you name it, it simply means this; digital capabilities are no longer a “nice-to-have”—they are emerging as a central value proposition for the new generation of investors.
Here are three important considerations to help Advisors prepare for the Great Wealth Transfer:
- Implementing a robust, client-focused, digital-first strategy is a must;
- Financial (and digital) literacy is fundamental for everyone involved including the next generation;
- Firms and Advisors must look for opportunities to deepen client relationships by providing value to spouses and family members.
For firms looking to grapple and “win” The Great Wealth Transfer, here are seven tried-and-true strategies that the top-producing firms and advisors are leveraging to retain generational relationships and assets.
One of those strategies is an investment in best-of-breed technology that appeals to current clients and the next generation. Above all, what we’re continuing to notice and see play out is the Digital Vault becoming the linchpin in estate, succession, legacy, and wealth transfer conversations and situations with clients.
Overcoming Impending Challenges
With respect to both impending issues, the aging population and dementia, along with The Great Wealth Transfer, having the right systems, tools, and technologies in place, can and will equip firms and advisors to confidently address these challenges head-on while remaining competitive, and importantly, winning the heart, mind, and wallet of the consumer.
A Digital Vault platform like FutureVault is fundamental to the collection, preservation, maintenance, and protection of critical information and documents — enabling advisors and the firms/institutions that support them to “keep their house in order” while ensuring that an exceptional client experience is delivered at every intersection of client interaction.
