A new study by US Trust sheds light on how the shifting dynamics of the modern American family is interplaying with the highly talked about US transfer of wealth currently underway.

As shifting dynamics of the “modern American family” overlap with the ongoing transfer of some $15 trillion in financial and non-financial assets over the next 20 years, traditional approaches to wealth management will need to evolve, a new report today suggests.

US Trust surveyed 680 high net worth individuals with at least $3 million in investable assets for its latest Insights on Wealth and Worth survey. The results show that changing family structures, multi-generational and extended family circumstances, evolving gender roles, and generational views on investing and use of wealth means that the perspective of “mine, yours and ours” is the industry’s new reality.

The firm told Family Wealth Report that wealth managers have historically focused on discussions with clients about asset allocation and relative investment performance before fully understanding their goals and financial needs.

“As an industry, wealth managers also traditionally focused on serving the primary account holder (mostly male, older clients) and did not aggressively seek relationships with or the perspective of spouses and next-generation heirs nor the diverse perspectives and needs of high net worth women, Millennials, entrepreneurs, LGBT, etc.” 

A big concern cited by wealthy families in the study was assuming financial responsibilities for family members and having to deal with the consequences of unexpected events. For example, 46 per cent had previously experienced a “change or disruption” following a divorce, loss of a spouse or partner and subsequent remarriage and the “blending” of families. Meanwhile, six in ten said they have provided “substantial financial support” to adult family members – yet just 3 per cent have a financial plan accounting for this.

In other significant findings, it emerged that only 38 per cent of married couples have a financial plan to cover the cost of long-term medical care. Moreover, just one in ten has a plan centered on the long-term care needs of their aging parents. The issue is important as the challenges associated with aging are complex and require an understanding of diverse options for living arrangements, healthcare, financial planning and estate planning.

Overall, the five main events found to affect family financial wellbeing are: divorce; addictions; death or disability of a primary income earner; medical crises; and disagreements over inheritance or distribution of family assets.

Wealth transfer

According to the survey, 78 per cent of wealthy people today achieved their financial status having created it themselves versus inheritance. Reflecting this, it was found that 52 per cent grew up in middle class or lower middle class households. Indeed, according to findings from the World Wealth Report 2014, released yesterday by Capgemini and RBC Wealth Management, 40 per cent of the current level of global high net worth wealth has been created in the past five years.

The children and heirs of these wealth creators are therefore likely to be the future beneficiaries of significant family wealth. However, only 38 per cent of parents with children over the age of 25 have fully disclosed their financial status, while an equal amount (worryingly) strongly agree that their children will be well-prepared to handle the inheritance planned for them.

This highlights a significant misalignment: how can children prepare themselves if they are unaware of what is to come?  This is an area of great focus among many industry players today – preparing the next gen to be good stewards of wealth and equipped for future financial decision making. Reassuringly, an overwhelming 92 per cent of parents appear open to rectifying this “disconnect,” saying their children would benefit from talking to a financial advisor.

In January 2013, US Trust unveiled an integrated offering for the "modern wealthy American family" to address the complex and evolving needs of parents, children and extended family members. Family Wealth Services aggregates investment, banking, wealth transfer and legacy planning capabilities, providing strategies that incorporate generational differences, family diversity, emerging risks to financial security and overall family goals and values - see more here. 

Millennials

Not only are millennials – also referred to as Generation Y – set to receive their wealth under different circumstances, they plan to use if in different ways, the survey shows. This sheds light on the direction and purpose of family wealth changing hands in years to come, US Trust said.

Specifically, 66 per cent of millennials say their investing focus is on meeting long-term goals in an “innovative, individualized and opportunistic” approach. For example, three-quarters consider the social and environmental impact of the firms they invest in to be an important piece of related decision making. Meanwhile, 81 per cent either own or are interesting in owning tangible assets such as land.

“Most of the wealthy today are self-made and want their legacy to matter,” said Keith Banks, president of US Trust. “Traditional approaches to wealth management need to evolve and incorporate the diverse perspectives, roles and contemporary needs of the modern family.”