• With a projected $18.3 trillion in wealth to be transferred globally by 2030, the "great wealth transfer" is expected to be largest intergenerational transfer of assets in history.
  
  
• The factors fuelling this shift are multifaceted, encompassing demographic trends such as an ageing population, increased wealth accumulation and longer lifespans.
  
  
• Advisers must be equipped to handle a range of concerns, from estate planning to retirement and investment management, while being attuned to the distinctive goals and investment preferences of the inheritors, which may diverge from those of their predecessors.
   

In the next few decades, the largest intergenerational transfer of wealth in history is expected to occur. The “great wealth transfer”, as it has been dubbed, will see a significant movement of assets to younger generations and is anticipated to have a profound impact on the financial sector, particularly within financial advice.

By 2030, a projected $18.3 trillion in wealth will be transferred globally, with $3.5 trillion of this within Europe¹. Those numbers grow the further we look ahead and several factors are driving this transfer, including an ageing population, increased wealth concentration and longer life expectancies.

The great wealth transfer presents an opportunity and a challenge for both inheritors and advisers. Previous research in the US² has indicated that up to 70% of wealthy families lose their wealth by the next generation and as many as 90% lose their wealth by the third generation.

Good financial advice and planning services can help preserve wealth across generations, but further research suggests that inheritors—usually a female spouse and/or children—tend not to use the same financial adviser as their partner³ or parents⁴, and in some cases do not use an adviser at all.

The research indicates that advisers often neglect to sufficiently engage with both partners in a relationship and often do not engage at all with the next generation, giving inheritors little incentive to retain their partner or parents’  advice provider after they receive an inheritance.

To successfully navigate the great wealth transfer and help inheritors preserve wealth, not only must financial advisers be prepared to address a wide range of issues, including estate planning, retirement planning and investment management, but also develop an understanding of inheritor goals and preferences.

The great wealth transfer challenge

In any scenario, wealth transfer is a complex process that requires advisers to deal with a number of challenges. For the client, planning may feel morbid and uncomfortable. They may struggle to decide how their assets should be disbursed, or may disregard sound advice. Additional problems can arise in cases where a subject is elderly or otherwise vulnerable - and specialist legal support should be sought in such cases.

While advisers may enjoy a solid relationship with a client, they might not have the same bond with the client’s partner or children. Partners could have differing objectives – they may disagree with proposed inheritance, trust or succession structures, or have descendants they feel require additional support. Then there is the possibility of conflict among inheritors, with advisers required to play the role of mediator to facilitate open dialogue.

At the heart of wealth transfer is the emotional side of estate planning, particularly when family dynamics are complex. A significant challenge is harmonising the needs, values and aspirations of multiple inheritors while protecting the client’s interest at the same time. Advisers may need to play the role of financial educators, helping clients understand financial concepts such as asset allocation, risk management and tax planning.

The great advice transfer

As clients take steps to dispense their wealth to descendants, advisers should keep in mind the differing priorities of parents and children. For example, millennial and younger inheritors may prioritise accessible, digital advisory services; and have a contrasting set of tastes in investable assets; or may have a different degree of cost sensitivity and perception of where they see value compared with their parents.

In Vanguard’s Advisory Research Centre, which aims to deliver relevant, practical and actionable research to advisers, we expect to see a shift from a smaller number of larger investment portfolios held currently by the over 60s, to a larger number of smaller portfolios (at least initially) held by their eventual inheritors. 

We also anticipate that, aside from having new owners, much of this wealth will be managed by a new adviser (or in some cases, no adviser). Providing advice services to inheritors is likely to become more competitive, with some advisers successfully building their practice upon this wealth transfer, while others may struggle.

Advisers who connect with inheritors on a deeper level will be better positioned to help them navigate the emotional complexities of wealth transfer. Inheritors often experience a wide range of emotions, from excitement to anxiety, and are looking for support to help them manage these feelings.

The importance of engagement

As the great wealth transfer gets underway, advisers that find a way to engage with the next generation in the right way and at the right time will enjoy a considerable advantage. Understanding generational and gender differences could be the key to retaining client trust, confidence and assets during the wealth transfer process.

To facilitate engagement, flexibility is often required. Advisers may need to meet with family groups in different configurations according to the desires of the main client or assign specific advisers to particular descendants or groups of descendants. Furthermore, high-net-worth individuals in particular may wish to implement certain guardrails, including specific levels of disclosure relating to asset values.

In this transformative era of wealth exchange, advisers who successfully navigate the complexities of intergenerational wealth transfer not only help to secure their professional future but also leave an indelible imprint on the financial futures of the rising generation.

¹ Source: Wealth-X, “Preservation and Succession: Family Wealth Transfer 2021”.

² Source: Nasdaq, “Generational Wealth: Why do 70% of Families Lose Their Wealth in the 2nd Generation?”, 2018.

³ Source: McKinsey, “Women as the next wave of growth in US wealth management”, 2020.

⁴ Source: Cerulli, “The Cerulli Edge—U.S. Retail Investor Edition, 4Q 2023 Issue”, 2023.
 

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