The Great Wealth Transfer: Recognise the Opportunity

Why the Great Wealth Transfer will be a matter of life or death for Asset Managers

Managing the Great Wealth Transfer will be a matter of life or death for Asset Managers and financial service companies. Upon transfer it is a natrual point for the new owners to reconsider how those assets are managed. Millennials seem eager to change managers.

As a young, future-conscious firm that prides itself on keeping a finger on the pulse of industry-wide trends, we have hand-picked several relevant topics & disruptive themes to explore in a series of ongoing posts, surveys, and research updates. These topics include the rise of the digital asset class, growing ESG concerns & controversy, millennial investors and the great wealth transfer, and more...


'It's your inheritance anyway!'  my grandpa cackles, tongue-in-cheek, as he waves away my 'thank you' after a lovely dinner out. It's a familiar echo of the many frank discussions we share about life, mortality and wealth - which I've become used to over the years. Imagine my surprise when I discovered that discussing these sorts of topics openly is not everybody's cup of tea...

I learned this lesson the hard way when a senior executive at a broker was visibly startled after I told them many of their important clients would likely pass away within a decade, or much more preferably, two decades. As morbid as it sounds, the truth of the matter is that it would be better for their business to start attracting  new & younger generations to their platform now, rather than waiting until they inherit the money years later. The impending transfer of wealth between generations (often referred to as the Great Wealth Transfer) will not only be a historically large shift of wealth, but also catalyse a paradigm shift of an entire industry.

Be Prepared for the Great Wealth Transfer

'The greatest wealth transfer in modern history has begun.' - Wall Street Journal, July 2021

A staggering $68 trillion of assets will be transferred in the next 25 years to heirs and charities, according to Cerulli Associates [1]. The major benefactors: Generation X (born between 1965-1980, ages 56 - 41) and Millenials (born between 1981-1996, ages 40 - 25) as can be seen in the illustration below.

To put things into perspective: the Silent and Earlier generations, which held about 30% of global assets in 2010, are down to 13% today. Millennials, meanwhile, are up from 1.7% to over 8%, and Gen X holds as big of a share now (30% ) as the Silent and Earlier Generations did a decade ago. The next generation will play an increasingly important role in Asset Management as they control an growing part of the assets.

Different Generations, Different Expectations

As generations change, so do expectations. Every generation has experienced different financial markets over the years, shaping their opinion of investing. Millennials, for example, have spent their formative years living through & listening to their parents deal with the fallout of the Dot Com Crisis and the Great Financial Crisis.

Aside from their turbulent experiences with the broader financial markets, they have vastly different expectations vis-a-vis technology and climate change. Millennials grew up with the Internet. This sets high user experience expectations for financial services, as well as vastly different expectations in terms of communication methods.

As for climate change, 3 out of 4 Millennials believe it is a serious threat to society, and this is also reflected in their investment decisions [2]. According to Legg Mason in 2019 [3], more than 66% of millennials choose funds based on ESG considerations, compared to 32% of Baby Boomers.

The full scope of differences in investment expectations and experiences across generations could easily demand its own blog post - which is why we've got you covered! Keep an eye out on our LinkedIn for a deep dive post on that exact topic, and more...

A Natural Point to Reconsider Your Wealth Manager

Upon transfer, Millenials will naturally consider their options in terms of how and with whom their newfound assets will be invested. Managers with long-standing client relations should take notice. Over 80% will look for a new financial advisor after inheriting, according to most studies [4]. Additionally, based on research by Broadridge, Millennials aren't completely sure their providers are ready to give them what they need, and in that case, over 70% would consider moving to a different investment provider altogether [5]. Given the $68 trillion in play, being 'Millenial Ready' has enormous potential for firms to capture and/or retain market share over the coming decades.

Recognise the opportunity and get an early start

This confronts Assets and Wealth Managers with quite a conundrum. On the one hand, AM's need to invest and prepare for the increasing importance of Millennials over the long-term. Focusing on millennials, however, can be a money-losing proposition in the short term because they don't (yet) have as many assets as Baby Boomers. However, for an industry often exalting the long-term view required to be an investor, I have faith that this should be a solvable challenge.

A great example is the retail wealth management services offered by Goldman Sachs - through Marcus Invest . Marcus is focused on the digital experience and offers robo wealth services for accounts with a minimum of $1000, highlighting the investment decisions are powered by Goldman Sachs. This allows Goldman to build a relationship with the (younger) family members of Goldman's current private wealth clients at an early stage [6].

By experimenting and testing out different strategies on a small scale now, relevant insights can be developed and leveraged to roll out large scale efforts later on, when it is more profitable to do so. Discovering what works now while Millenials aren't the primary client group  provides the room for error necessary for true discovery and innovation.

If indeed 80% of those on whom the $68 trillion is bestowed are looking for new advisors and managers, a $54.4 trillion opportunity will be up for grabs over the next decades. The winners will be those that can bind Gen X and Millennial best to themselves, either by winning them over from other firms or by retaining the best by building an early relationship. Either way, for Asset Managers and other financial service providers, navigating the Great Wealth Transfer will be a matter of life and death. No pun intended.


At CORE - Raise & Retain it is our mission to help investors raise capital in the short term and retain assets in the long term. We see the Great Wealth Transfer as a major opportunity for both. When formulating your Millenial strategy, give the Millenials at CORE a call. We are looking forward to exploring opportunities with Asset Managers to capture the attention of  the growing, future generation of Assets Owners.

Sources:

[1] “The Great Wealth Transfer.” U.S. HIGH-NET-WORTH AND ULTRA-HIGH-NET-WORTH MARKETS 2018, CERULLI ASSOCIATES, https://info.cerulli.com/HNW-Transfer-of-Wealth-Cerulli.html

[2] Adamczyk, Alicia. “Millennials Spurred Growth in Sustainable Investing for Years. Now, All Generations Are Interested in ESG Options.” CNBC, CNBC, 21 May 2021, https://www.cnbc.com/2021/05/21/millennials-spurred-growth-in-esg-investing-now-all-ages-are-on-board.html

[3] Legg Mason Global Asset Management, 2018, LEGG MASON GLOBAL INVESTMENT SURVEY 2018, https://www.gestiondefortune.com/attachments/article/5660/Etude Legg Mason.pdf, Accessed 2021.

[4] Osterland, Andrew. “What the Coming $68 Trillion Great Wealth Transfer Means for Financial Advisors.” CNBC, CNBC, 21 Oct. 2019, https://www.cnbc.com/2019/10/21/what-the-68-trillion-great-wealth-transfer-means-for-advisors.html

[5] Broadridge, 2016, Targeting the Digital Generation, https://www.broadridge.com/_assets/pdf/broadridge-targeting-the-digital-generation.pdf, Accessed 2021

[6] Ungarino, Rebecca. “Goldman Sachs Wants to Hold onto Its Richest Clients' Kids. the Bank's Private Wealth Heads Explain How Its Marcus Unit Is Helping Them Do That.” Business Insider, Business Insider, 19 Apr. 2021, https://www.businessinsider.com/goldman-sachs-private-wealth-management-marcus-tech-generational-transfer-2021-4?international=true&r=US&IR=T

Founding Partner at CORE, and serves as Chief Product Officer.