THE GREAT WEALTH TRANSFER

Taamara de Silva highlights opportunities for the international financial services industry

The global population is ageing at a rapid rate with statistics indicating that one in six (16%) people will be over the age of 65 by 2050, owing to increased life expectancies at birth and overall improvements in longevity. This has far-reaching impacts, introducing sweeping changes across labour markets, healthcare and housing.

Indeed, the ‘Silver Tsunami’ is approaching rapidly.

In the coming decades, we will experience the ‘Great Wealth Transfer.’ Globally, an estimated US$ 30 trillion in assets will flow from senior citizens to their heirs, most of whom are millennials and generation X. It’s still in the scope and power of financial services institutions to take assertive action and capitalise on this opportunity.

This brings us to the concept of private wealth management – a comprehensive financial practice combining financial planning and investment management to holistically serve the needs of affluent individuals and their families.

Going beyond simple investment recommendations, private wealth managers consider the entire financial life cycle of providing a range of end-to-end services that cover portfolio management, tax and estate planning, and philanthropic ventures. And many private wealth managers have rather weak relationships with this younger demographic and are poorly prepared to serve them.

Over the last decade, technologies such as smart portfolios and ‘robo-advisors’ have shifted from mere concepts to genuine competitive threats. The financial services industry has long recognised the threat of disruption and yet, private wealth managers continue to argue that their strong client relationships will act as a shield – but not for long.


Sri Lanka’s wealth management sector is fragmented by a few specialist investment management firms with evidence suggesting a growing demand from high net worth individuals and family businesses.

To cater to this demand, established financial services conglomerates and collectives of investment professionals are setting up boutique investment and family offices, developing deliberate plans to help clients navigate their inheritances and recently acquired wealth.

For clients, good advice is like gold as they face retirement and the issues surrounding ageing. Private wealth management extends well beyond the scope of where and how to invest, to ensure that the right decisions are made to enhance the standard of living.

The wealth management process is an art that uses scientific tools; it’s more of a combination of interpersonal skills and intuition with financial theory. Wealth managers require both technical and soft skills in their advisory roles. Technical skills include capital markets proficiency, portfolio construction ability, financial planning knowledge and quantitative skills. Meanwhile, soft skills encompass communication, and social, business development and sales skills.

Questionnaires are generally employed to assess clients’ risk tolerance, which is often used as an input in the investment planning process.

A capital sufficiency analysis – also known as a capital needs analysis – must be conducted through which wealth managers determine whether clients have or are likely to accumulate sufficient financial resources to meet their objectives. Two such approaches are the Monte Carlo simulation and deterministic forecasting.

Wealth managers must use several methods to analyse clients’ retirement goals including mortality tables, annuities and the Monte Carlo simulation. Once these scenarios are analysed, investment policy statements are customised to address clients’ risk return profiles and expectations.

This details backgrounds and investment objectives; investment parameters (risk tolerance and the investment time horizon); asset class and other investment preferences (such as liquidity and constraints); portfolio asset allocation; portfolio management (discretionary authority, rebalancing, tactical changes and implementation); both parties’ duties and responsibilities; and an appendix for additional details.

The most common approaches to constructing client portfolios are traditional and goal based investing strategies, which aim to help clients meet their personal and lifestyle goals.

Once the investment portfolios are established, wealth managers provide clients with information about them and their performance through portfolio reporting. Similarly, portfolio reviews are conducted between both parties to discuss investment strategies. The key difference is that wealth managers are more actively engaged in reviews.

The success of investment programmes involves achieving client goals, following a consistent process and realising favourable portfolio performance.

To summarise, success in attracting and retaining client assets in the coming inter-generational wealth transfer is expected to hinge on wealth management companies’ capability to develop easily scalable end-to-end strategies rather than disconnected solutions.

For clients, good advice is like gold as they face retirement and the issues surrounding ageing