A barely conceivable $53 trillion of wealth is held by Baby Boomers, who are passing on and whose assets are in transfer to younger generations. A one-size-fits-all approach to advice isn't going to work, argues the author of this article.

This news service is pleased to share these thoughts on intergenerational wealth transfer from Stephen O’Kane, director, AlTi, the international multi-family office created from a transatlantic merger. The whole topic of wealth transfer, readers might imagine, has been beaten into the ground, but there’s always a new angle. We are grateful for the opportunity to share these insights from such a major organization. The usual editorial caveats apply to the views of guest contributors. Jump into the debate! Email tom.burroughes@wealthbriefing.com 

The world’s wealthiest people are poised to make the greatest capital transfer of all time. According to research from Cerulli Associates (1), which analyzes data from the global financial services industry, $84.4 trillion will change hands between now and 2045, a figure almost four times the entire gross domestic product of the US. 

The lion’s share of this wealth will pass to heirs – around $72.6 trillion in assets while the rest will be donated to charities. Generation X is expected to inherit the greatest portion of this wealth transfer, including $8.9 trillion in the next 10 years, totaling $29.6 trillion over the next 25 years. Millennials are expected to inherit more than $27 trillion by 2045. The impact of this kind of inherited wealth is seismic, creating a rising generation of wealthy custodians globally. 

But who exactly are the people behind this term “rising gen”? They hail primarily from the Gen X and Millennial demographics – but are they custodians of family fortune or creators of new value? Their motivations and interests are of paramount importance. These people will have the spending power to shape the world. 

Rising gen – does it only tell part of the story?
If you were to define a rising-gen individual, what would they look like? In my experience, there are more differences than similarities between these individuals. 

Let’s look at a handful of people who fall under the rising-gen umbrella. 

They could be someone hailing from the second generation who is taking over a successful family business – with all the stresses and responsibilities that come along with the wealth itself. Or perhaps they are the scion of a multi-generational wealthy family, accustomed to financial freedom but keen to make their mark on the world.  

Alternatively, I have met rising-gen clients in their thirties who were raised to be careful with money but whose parents have now sold businesses, suddenly realising significant wealth. Or some people become rising gen overnight when they inherit unexpectedly. I have also met those who retain long-held family assets, such as real estate, that are punitively expensive to maintain, but cannot let them go. It takes experience and sensitivity to help these individuals plan.

Or think of a tech entrepreneur who has just exited a business or completed another investment event and created brand new wealth. Or a public personality with a lucrative personal brand. They too are rising gen, but their lived experience and priorities may be very different. 

Then you get geographical diversity. In Asia, for example, most billionaires hail from the first generation – they are the original wealth creators. According to PricewaterhouseCoopers, 47 per cent of the 1,143 billionaires in Asia (2) were created over the past year. In Europe and the Middle East, that year-on-year difference is just 22 per cent, while the US figure stands at 21 per cent. 

That said, the number of millionaires and ultra-high net worth individuals is expected to grow over the coming years, according to Credit Suisse – to 87 million and 385,000 globally in 2026 respectively. Asia will see an additional 51,000 UHNW individuals, reaching a total of nearly 118,000, with 51 per cent of those from China. 

This group is truly a diverse and fascinating one, all arriving at this point in their lives from different origins and with very different goals in mind. When each person has their own unique perspective, creating an investment strategy and suitable financial infrastructure with them becomes a fine art. The “cookie cutter” approach has no place for this exciting demographic.

The destination and the journey matter
Of the vital differences between members of the rising-gen demographic, there are two principal considerations: what makes them tick and what they want to achieve in life. I see this as informing the journey and the destination when it comes to their financial plan and investments.

Someone from the second or third generation taking on the family business, as well as assuming the mantle of wealth, may bear a great burden: “I want to enhance the legacy of this business,” is something I hear often.  

Some may have entrepreneurial forebears and share those honed skills and appetite for calculated risk, putting their own spin on the family’s approach to business and investment. Others may want to express themselves in a different way: through philanthropy or charitable impact. There has been a boom in impact investment in recent years, as the Millennial generation prioritizes supporting projects and companies that protect people or planet. Last year, 61 per cent of Millennials considered impact in their investments (3), and with the global impact investing market projected to grow by 9.5 per cent annually through 2031, the rising gen are likely to continue to influence this expansion.

All these nuances will inform a person’s investment appetite and strategy. It’s as personal as their fingerprint – no two will be the same. The biggest questions for these clients are: what destination are you aiming for? If that is unclear, what elements are important to you on your journey? Is it about supporting the causes close to your heart, or investing in the startups that are changing their industries? Do you want to hone your business acumen, or do you have other priorities right now? 

The myth about inherited wealth
The idea that most of today’s wealthy are just sitting on a pile of family money is inaccurate. In fact, 68 per cent of the world’s wealthiest people (with a net worth exceeding $30 million) are self-made (4). While 24 per cent possess a combination of inherited and self-created fortunes, just 8.5 per cent became wealthy through inheritance alone.

As an aside, 70 per cent of family fortunes don’t make it through to the second generation; this figure rises to 90 per cent for the third generation (5). Therefore, the people who manage to retain inherited wealth down the generations have done so through great instincts, the best advice, a little luck, and by taking full advantage of opportunities that have presented themselves. 

It is time to broaden the conversation
The stakes are high. American Baby Boomers are estimated to hold more than $53 trillion of the $431 trillion in privately held assets worldwide, according to 2020 data from Boston Consulting Group (6). 

As advisors, we should view this multi-faceted demographic as global citizens and strive never to provide a one-size-fits-all service. We should understand an individual’s needs and goals and translate into a wealth management strategy that evolves as their priorities shift. 

Therefore it’s vital that advisors engage early, offering mentorship and opening doors to access. Also important is sharing the experiences of what has worked for other families, enabling this demographic to learn from and discover the strategies that might apply to them too.

It’s also important to look beyond the current generation. How will they feel when it is their turn to become chief custodian of the family fortune, when they have their own ways of doing things? As advisors, we need to be unafraid of tearing up the rule book to create a brand new way of working that is as unique as they are.

Footnotes: 

1,  https://www.cerulli.com/press-releases/cerulli-anticipates-84-trillion-in-wealth-transfers-through-2045 

2,   https://advisors.ubs.com/mediahandler/media/503066/billionaire-ambitions-report-2022-double-pages.pdf

3,  https://www.fidelitycharitable.org/content/dam/fc-public/docs/insights/impact-investing-using-dollars-for-change.pdf

4,  https://wealthx.com/reports/world-ultra-wealth-report-2019

5,  https://business.smu.edu.sg/master-wealth-management/lkcsb-community/how-beat-third-generation-curse

6,  https://www.newsweek.com/boomers-millennials-transfer-wealth-future-1795099