Navigating Wealth Transfer in a Digital Era

The future of wealth management will inevitably be influenced by the vast generational transfer of wealth that is set to occupy the industry in the coming decades. This seismic wealth transfer will see family wealth passed down and assets being taken over by younger people with different ideas and expectations around wealth management and technology.

The Changing Landscape of Wealth Transfer

The great generational transfer of wealth will over time place assets in the hands of younger people and wealth management firms will need to meet the demands of this next generation. Cerulli Associates, a Boston-based research and consulting firm, has estimated that in the U.S. alone, $84.4 trillion of wealth will be transferred down the generations by 2045 – with 42% of that total expected to come from high-net-worth (HNW) and ultra-high-net-worth (UHNW) households. The expected recipients of this monumental wealth transfer are already seemingly anticipating their change in circumstances. Knight Frank’s 2024 Wealth Report showed that, for HNWIs, 69% of Millennials and 75% of Gen-Z respondents expected a wealth increase in 2024 – figures that outstripped the confidence of ‘Boomer’ respondents by some margin.

From Traditional to Digital Assets

The transfer of wealth down the generations will bring fresh challenges to the wealth management industry. Attitudes towards asset classes and technology will likely change and it will be the role of a wealth manager to adapt to and guide the next generation of HNW and UHNW individuals.

The vogue for assets such as cryptocurrencies will require wealth managers to ensure that younger people with significant wealth understand the risk profile of digital assets and appreciate the value of a diversified portfolio with adequate downside protection. Long-term thinking combined with a sensible approach to risk will always be a prudent wealth strategy and making sure clients of any age understand these principles will be key as wealth transfers down the generations.

Generational Shifts and Wealth Expectations

The next generation of wealthy individuals and families will come with their own ideas on how wealth should be best managed. This may involve thoughts on the ideal composition of an investment portfolio and which asset classes are most desirable. It will undoubtedly involve the need for faster and more convenient communication methods. As with other spheres, the face-to-face meeting may become less prominent. It could also mean that views around sustainable investing are more front and centre in a conversation with a wealth manager.

However the next generation plans to approach wealth management, it is important to begin educating those who will benefit from the wealth transfer as early as possible. Financial literacy extends far beyond understanding an investment portfolio and a deep understanding of issues such as taxation, estate planning, philanthropy and financial planning are essential for young people.

Technological Opportunities in the Future of Wealth Management

The world of wealth management has always evolved along with technological advances in other areas. Face-to-face meetings are far from extinct, but they have been supplemented with faster and more efficient electronic communications. Decisions that were previously made in-person and by phone can now be implemented by video call or at the click of a button. Wealth management clients benefit from an array of often unseen technology operating behind the scenes, making firms more efficient and productive. Firms that are sensitive to client needs will no doubt embrace the next generation of wealth and provide the level of technology that is required.

Preparing for a Digital Future

The emergence of digital assets such as cryptocurrency presents a certain type of challenge for wealth managers. The increasing popularity of a new asset class will never change the fundamental principles of sound wealth management. Considered financial planning and prudent investment management will always sit at the heart of the process. The main challenge for wealth managers is educating younger people about the risk levels involved in exposure to alternative investments such as cryptocurrency. Once a client fully understands the risks involved, they will be better placed to make an informed decision on exposure.

Human or artificial intelligence?

There has been a lot made of the rise of artificial intelligence over the last year and the temptations to seek automated guidance on wealth management will be greater than ever. Tools such as AI will likely play a larger role in wealth management processes, but this shouldn’t replace a considered conversation with an experienced professional. Experienced wealth managers can guide younger people in how to take advantage of new technology, while also making sure that tried and tested wealth management practices are followed.

 The world moves fast and wealth management evolves alongside it. The generational wealth transfer will bring different expectations around financial planning, investment strategies and technology. The job of a wealth management firm will be to incorporate the expectations of the next generation while transmitting the tried and tested principles of the industry. Considered financial planning combined with a diversified investment portfolio and a focus on long-term thinking will remain important, but new asset classes will emerge and new client technology will develop. A good marriage of the traditional and the innovative is likely to sit at the heart of wealth management in the future.