What does the generational wealth transfer mean for wealth managers and their clients?
Change is not always a constant in wealth management. Ours is an industry that prides itself on the preservation and steady growth of family wealth, with a focus on building long-term client relationships. There are proven practices around financial planning, investment management, estate planning and tax. When it comes to wealth management, following the tried and tested principles of the industry has been a prudent strategy.
As 2024 continues to unfold, change is feeling like the big global theme. It’s election year in the United States, the United Kingdom and the European Union, markets pivotal to our business and many others. The tectonic plates are shifting fast in geopolitics and firms are paying close attention to how those shifts feed into the world of wealth management.
Perhaps the most seismic change on the horizon for our industry is the much-discussed generational transfer of wealth. Cerulli Associates, a Boston-based research and consulting firm, has estimated that in the US 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 and ultra-high-net-worth households. And 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.
Generational shift and changing attitudes to wealth
The advantage of a steady and well-anticipated change like this one is that you have plenty of time to prepare for it. Wealth management companies across the board should already be thinking about what this generational shift will mean for the industry. What will change and what will stay the same? Are we talking about tweaks here and there or big shifts in business practices? It sounds obvious, but one of the best ways to work out the answers to these questions is to ask the next generation.
Along with being helpful to a family wealth manager, these conversations can be seen as part of an overall succession planning. A strong succession strategy is vital for any family when it comes to preserving and growing wealth down the generations. Families that foster a certain level of transparency around financial affairs can ensure that children have realistic expectations and build up the required knowledge to manage wealth effectively. An experienced wealth manager can play a key role in this process whilst gaining vital understanding of the priorities of future clients. Wealth management is a two-way relationship with a client and understanding client priorities is fundamental.
The obvious place to start when attempting to pinpoint how the generational wealth transfer will affect the industry is the potential changes in investment priorities. Sustainable investing has rocketed up the agenda in recent years, partly due to demands from younger people that their investments reflect their values. This purpose-driven investing has the potential to reshape a family investment portfolio. Stocks and bonds that older members of the family were comfortable with may not sit well with the younger generation. The market for sustainable investments is now deep and sophisticated and having the investment capabilities to enable younger clients to navigate these options will be key.
Rise of the digital natives
Wealth management firms also need to think carefully about their technology offering. The wealth management client of the future will require a seamless and easy digital experience to manage their finances across their global portfolios. However, it could be hard to predict exactly how technology, such as AI, will be utilised and how far it will take over from face-to-face human contact. It may well be that the industry settles on some kind of hybrid model, where in-person advice and client relationship is complemented and enhanced through technology.
Next generation wealth owners will no doubt bring changes to the wealth management industry. They will have different and more varied mindsets, occupations, interests and expectations. The key to success in the future will be marrying these changes with the fundamentals of the industry. Services such as financial, estate and tax planning are integral to holistic wealth advice. The new generation will need investment management, assistance with prime property, inheritance planning and routes into philanthropy.
All wealth management firms should have started to think about how their firm is preparing for this trend. The companies that embed thinking about the generational wealth transfer into strategic client aims are the ones that will be best placed to take advantage of the opportunities to come.
