The wealth management industry is in the midst of a technological transition as companies turn to technology to address challenges such as earnings growth, demographic changes, and operational efficiency.
This phenomenon is particularly noticeable in estate planning, an area that is long overdue and currently requires the asset manager to devote resources to training financial advisors, hiring in-house estate planning specialists, and manually converting dense documents into client presentations. Because these investments are required, many firms have reserved estate advice for their wealthiest clients who can benefit from a wider range of estate planning strategies and whose AUM will justify the cost. However, this creates the impression that estate planning is only suitable for the rich, despite the multitude of benefits it can offer clients of all wealth levels.
Wealthtech firms are turning history by developing solutions that democratize estate planning through artificial intelligence, design thinking, and automation. Asset managers leveraging this disruptive technology will make estate planning more accessible to a wider client base, improve financial advisors’ ability to differentiate themselves, and drive future growth.
The current status of estate planning
Estate planning plays an important role in wealth management as it provides an additional tool that financial advisors can use to create value and build stronger client relationships. For clients, a well-designed estate plan offers many benefits, including peace of mind, asset protection, and preparing future generations for inheritance. However, advising on estate planning is cumbersome and time-consuming.
A financial advisor must work with a client’s estate planning attorney to develop an estate plan, discuss the details with the client, and implement agreed strategies. Once this is complete, continuous monitoring and reporting are required to ensure that the plan continues to be consistent with the client’s circumstances. Over time, difficult family dynamics, a changing regulatory environment, or rising wealth can call these plans into question. Financial advisors need to stay ahead of these changes and understand their potential impact on the plan. This process requires considerable up front and continuous investment of time by the financial advisor.
Disruption of estate planning
Innovation opens the door to the democratization of estate planning. Wealth managers who have previously reserved estate planning for their wealthiest clients can use artificial intelligence and automation to begin targeting the high-net-worth consumer segment to attract tomorrow’s millionaires. For example, an asset manager can add an estate planning page to their client portal where clients can upload estate planning documents and receive automated analysis. A client uploading their estate planning documents would consent to this information being shared with the asset manager in order to improve the level of advice they can receive. The client can then choose to meet with a financial advisor to discuss their plan, or a financial advisor can proactively reach out to schedule a meeting. This service would add value to clients while delivering data that wealth managers can use to better understand their client base.
Estate planning technology can also improve goal-based advice by enabling advisors to provide visualizations that illustrate the alignment of an estate plan with a client’s goals. For example, a customer might have a goal to give their child $ 1 million at the end of their life. Traditional goal-based wealth management technology estimates that $ 500,000 invested in a stock portfolio today will allow the customer to achieve that goal given their life expectancy. The result of this analysis, while financially intuitive, does not take into account the structure of a customer’s estate plan.
Today, financial advisors need to review estate planning documents to make sure the plan is in line with that financial goal. Alternatively, the overlay of the estate planning technology would allow the financial advisor to automatically recognize that the estate plan needs to be updated. This would improve their initial recommendation by suggesting the client open a trust to more effectively increase the likelihood and size of assets that can be transferred in a tax efficient manner. Using estate planning technology, financial advisors can provide more holistic advice to their clients in real time.
Estate planning technology also creates opportunities to involve future generations. Estate planning attorneys recommend that clients communicate openly about their estate plan in order to prepare heirs for receiving an inheritance. However, many customers may be reluctant to fully share their inheritance plan with their children and grandchildren. Digital estate planning platforms can enable custom views of an estate plan with options to limit the information shared with heirs. This will enable financial advisors to involve future generations in estate planning talks that suit their clients’ needs. These discussions provide a framework for financial advisors to build relationships with future generations and improve asset managers’ ability to hold onto assets in asset transfers.
Up to $ 68 trillion in wealth will be passed on to Millennial and Gen X heirs in the United States over the next 25 years. Disruptive estate planning technology will make it easier for financial advisors to prepare clients for this impending asset transfer.
Vanilla, a wealthtech startup revolutionizing estate planning, is leading the way by creating a platform with automated estate reporting, intuitive visualizations and legal support for financial advisors. Their technology saves financial advisors time, automates the monitoring of a client’s estate plan, and provides an accessible digital representation of the plan.
Another tech company focused on helping financial advisors, FP Alpha has developed artificial intelligence that can interpret estate planning documents and generate plan analyzes on the fly. Consultants and clients can upload existing estate planning documents to gain key insights and quickly identify areas for improvement within the plan. Depending on the complexity of the estate plan, this technology could save financial advisors hours of digging through escrow and estate documents to gain an understanding of their clients’ plans. Asset managers using this technology will increase the capacity of their financial advisors to serve more clients while providing them with better advice.
As wealth managers prepare for a massive transfer of wealth from Millennial and Generation X heirs, an effective digital strategy becomes increasingly important. Estate planning in wealth management is currently a very manual and time-consuming service offering where digitization is lagging behind. New technologies disrupt estate planning through artificial intelligence, improved visualization of estate plans, and automated reporting. This technology makes estate planning services more accessible to the high net worth consumer segment, giving wealth managers a unique opportunity to attract previously underserved clients who are the future of their industry.
Matthew Berkowitz is a Managing Principal, US Wealth & Asset Management Strategy Practice Lead, and Eden Afriat is a Senior Consultant, both at Capco.