Generation X? Make It Gen$: Baby boomers are ready to funnel big bucks to heirs

Generation X is poised to make big money, new research confirms.

Gen Xers may have grown up cynical and sneering as their baby boomer siblings consumed the environment, cheap real estate and all the pre-HIV free love, but the slacker will appreciate the latest smirk as they reap billions and billions of dollars in generational transfer.

They will be the big winners with nearly $30 trillion by 2045, while baby boomers will settle for their meager $4 trillion, according to Cerulli’s report “US High-Net-Worth and Ultra- High-Net-Worth Markets 2021: Evolving Wealth Demographics.”

Over the next two decades, $84.4 trillion in wealth is expected to pass mostly (63%) through the hands of baby boomers, of which $11.9 trillion will go to charity.

The tap for the youngest will turn on relatively slowly, with Generation X receiving $8.9 trillion over the next 10 years, but they will see $1.5 trillion per year by the mid-2030s.

According to the report, Boomer Jrs., or millennials, will be second only to their cool uncles and aunts with their own $27 trillion slice of the American pie. Although Millennials will receive a relatively paltry $5 trillion over the next 10 years, they will overtake Gen X during the 2040s and by 2045 will inherit over $2.5 trillion per year. year.

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The rich will continue to get richer, with $35.8 trillion, or 42% of transfers, coming from wealthy and ultra-wealthy households, which together make up just 1.5% of all households.

The riches of the rich

In 2021, nearly 2 million high net worth households control nearly half of total investable assets in the United States. The report’s authors warned advisers that they cannot be expected to simply wait for the money to find them.

“The need to deliver a differentiated advisory experience based on each client’s unique needs and expectations has become more important given the growing number of wealth management options available to high net worth investors,” according to the report.

Wealth spawned significant wealth over the past few decades, mostly through mutual funds and hedge funds, 54%, while 26% came from individual securities.

That means they’ll need help managing the tax impact of transitioning to retirement and help planning their estate. Customers will also be used to clicking their way through their financial services, as 70% of all investors use self-directed providers, with almost the same percentage of customers with over $1 million in investable assets using these providers. .

According to the report, a quarter of HNW firms plan to add an advisory platform within the next three years. And 40% will add services because their customers demand them, with 27% of affluent businesses planning to add services to keep up with the competition.

keep the rhythm

To remain relevant to younger generations of investors, advisors will need to pay attention not only to technology, but also to ethical investing.

The key to technology upgrades will be improving the operational efficiency of businesses. This means technology providers will be sought after by smaller financial firms, which will need seamless integration between the many tools advisors need to serve future generations.

The ethical part of the equation involves environmental, social and governance investments. Already, 67% of HNW firms use the ESG investment standards and more are expected to use them this year.

“While the broader retail market is still in the early stages of harnessing ESG,” according to the report, “it has long been part of wealth managers’ conversations with HNW clients.”

As wealth passes generations, these dollars often leave the businesses of the original customers. But some HNW practices try to keep that wealth in-house, with 34% of companies using younger employees in conversations with customers’ children.

“Having younger team members work with next-generation relatives from wealthy households creates opportunities to develop emerging talent and can improve the stability of the overall client relationship,” according to the report.

Research has shown that family reunions and regular communication (81%) are the most effective wealth transfer planning strategy by HNW practices, followed by educational support (59%) and organized succession planning ( 31%), according to Cerulli.

Advisors should regularly incorporate family events into the process, said Chayce Horton, an analyst at Cerulli.

To improve intergenerational relationships, Horton recommends making family events a regular part of the counseling process. Extending interfamily relationships beyond the original clients not only keeps the next generation with the practice, but also creates a greater sense of responsibility as well as greater trust in advisors.

Not having a strategy is a plan for losing business, Horton said: “Walletshare winners will need to be prepared for changes in their business model and open to changing with the needs of a younger demographic.”

Steven A. Morelli is editor for InsuranceNewsNet. He has over 25 years of experience as a journalist and editor of newspapers and magazines. He was also vice-president of communications for an association of insurance agents. Steve can be reached at [email protected].

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