We examine some of the details around the massive intergenerational wealth transfer now happening across the US and the challenges that advisors must address.

The great $84 trillion wealth transfer is accelerating, requiring an intensified emphasis on multigenerational planning.

Baby Boomers are increasingly likely to transfer wealth instead of drawing it down, according to research firm Cerulli Associates, making a Next Gen service emphasis even more critical for wealth managers.

“Based on these findings, we really recommend to clients they put more of an emphasis on addressing and targeting the needs and service expectations of clients that are in their high 30s and 40s, the core Gen X and older Millennial space,” said Cerulli research analyst Chayce Horton, speaking at a webinar on the US high net worth marketplace. 

As that cohort’s assets and financial complexity ramps up, their demand for more wealth management services will accelerate “more than any other demographic,” according to Horton.

Eye-popping numbers
The wealth transfer numbers are staggering.

Cerulli estimates that Generation X, between ages 40 to 55, will inherit nearly $30 trillion in the next 25 years, while Millennials, age 24 to 39, will inherit over $27 trillion. Gen X households, according to Cerulli will be receiving up to $1.5 trillion annually by the mid-2030s.

The wealth transfer will be relatively concentrated, however. Around 42 per cent of the overall total volume of $84 trillion expected to be transferred by 2045 is expected to come from high net worth and ultra-high net worth households, which together make up only 1.5 per cent of all households.

That’s important for wealth management firms, which target those HNW households with more than $5 million in investible assets. And the massive wealth transfer impacting that market poses both challenges and opportunities for advisory firms.

See you later
The biggest challenge, of course, is the potential loss of clients – and assets.

“A lot of advisors have very limited interaction with children of clients,” said Asher Cheses, an associate director of wealth management consulting at Cerulli. As a result, he continued, approximately 70 per cent of children end up firing the family’s advisor when the wealth holder dies.

That sobering reality has been a wake-up call for advisory firms.

“It’s become really clear that firms are taking multigenerational planning a lot more seriously,” Cheses said. “It’s been one of the hottest topics, especially coming out of the pandemic where families were spending a lot more time with each other, and firms are now addressing these challenges more head on.”

One Cerulli client, a large RIA, recently lost a wealthy client when the husband passed away. The wife left the firm because she had been ignored, Cheses said. What’s more, the firm the wife migrated to had an ESG specialty, which she valued – unbeknownst to the previous firm.

“It’s so important to actively involve the spouse in the planning process,” Cheses noted. “It’s also really important to engage children early on – you can’t just wait until you find out they’re about to inherit a substantial amount of money. Advisors need to build a genuine relationship and understand their priorities if they want to increase the likelihood the child will stay on with that advisor over time.”

Young blood
What are effective strategies for retaining Next Gen clients?

A team-based approach that brings in younger advisors who can work alongside senior advisors and “build more trusting relationships,” is key, Cheses said. Younger advisors can grow alongside younger clients and “build stronger relations and touchpoints with NextGen.”

Multigenerational planning requires firms to adapt to the “shifting preferences and behaviors of [younger] clients, who have very different ways of interacting, communicating, and investment preferences,” Cheses said. “It requires advisors to really be attuned to these differences and behaviors and to shift their mentality and behavior in ways they can connect beyond the primary wealth holder.”

Importance of family meetings
Family meetings and regular communications with family members was the most effective wealth transfer retention strategy used by advisory firms, Cerulli found.
Family meetings are indeed “very helpful for deepening a connection to the Next Gens because it helps give them a voice when they often had not had one,” well known family wealth consultant Jim Grubman told Family Wealth Report.

“The meetings also help create clarity around future planning because Next Gen family members naturally want to know what to expect but are afraid to appear greedy or entitled,” said Grubman, who has facilitated hundreds of family meetings. “Improving communication improves family cohesion, and the advisor often gets credited with making that happen via family meetings.”

But advisors don’t have to get buy-in from everyone at first, because not everyone will be enthusiastic. “Start with the willing,” he advised. “You can also start with smaller groups before bringing everyone together.”

Families are having more virtual meetings since the pandemic, but in-person is still better, Grubman said: “You can’t pick up important nonverbal cues on a screen or replicate the closeness of being together in the same place.”

Educating family members on the purpose of wealth was the second most effective wealth transfer retention strategy, followed by succession planning for the family hierarchy and the family business, charitable planning and a family mission statement.