We are currently witnessing one of the most significant transfers of wealth the US has ever experienced. According to Cerulli Associates, $84.4 trillion will transfer from the silent generation and baby boomers between now and 2045. Of that, $72.6 trillion will be transferred to heirs and $11.9 trillion will be donated to charities. In this environment, the winners will be the advisors who can showcase their knowledge and expertise in managing legacy wealth. The losers will be the advisors who fail to make a case for the value of advising the entire family. Thus, advisors must understand how is it working with people from different generations, as they have different needs and beliefs regarding their approach to money and legacy.
Let’s take the Gen X: 65.2 million Americans born between 1965 and 1980. They are independent, flexible, and adaptable, and they distrust the institutions, the government, and authority figures like their parents.
From a financial standpoint, members of the Gen X generation are a study in contrasts. Last year, they held about $100,000 more in wealth per capita of any generation, 18% more than baby boomers at the same life stage, while also carrying the most debt of any generation.
To assist Gen X clients, financial advisors should begin with a comprehensive financial plan that outlines their goals, financial resources, and the potential risks they may encounter along the way. Given that this generation often carries a significant amount of debt, implementing a strategy to pay off that debt can help alleviate financial stress and pave the way towards achieving their financial goals. This may involve creating a budget to allocate funds towards debt repayment that focuses first on paying off the highest interest debt using strategies such as debt consolidation or refinancing, then tackling the lower interest items.
Now let’s talk about the individuals born between 1981 and 1996. With an estimated population of 72.24 million people, on July 1, 2019 Millennials surpassed Baby Boomers as the largest generation of the US.
Millennials are often labelled as the “helmet generation” due to their perception of being pampered and privileged because their parent’s overprotectiveness and safety concerns involved the use of helmets for every activity. This heightened awareness of risks extends to the financial realm as well. Millennials witnessed the impact of events like the collapse of the dot-com bubble in the early 2000s and the 2008 financial crisis, which directly affected their parents’ finances and careers. Additionally, the burden of high student debt has further contributed to their skepticism and lack of trust in the financial services industry.
This generation is looking for a way to make a difference in the world. As digital natives, it’s likely that they will continue using computers and social media to influence others and effect change. The Millennial generation is leading the demand for environmental, social, and corporate governance (ESG) investments.
To attract Millennials, make sure you have a user-friendly website that’s tailored to their needs and interests. Optimizing the website for mobile devices is also essential, as Millennials rely heavily on their smartphones for information. Providing comprehensive information about financial planning, investment strategies and retirement planning is key to capturing Millennials’ attention. They appreciate educational resources like videos, webinars and interactive tools that enable them to model different financial scenarios and assess the potential outcomes of their decisions. Millennials also have a significant debt problem, amounting to almost $4 trillion. Financial advisors need to be sensitive to the debt burden carried by this generation and offer solutions that help them manage and pay off the debt while making progress toward their financial goals.
So, to tap into this great transfer of wealth, you will need to expand your reach by thinking bigger and broader, moving beyond advising a single generation within a family to advising the entire family. This shift enables you to capture the opportunities presented by intergenerational wealth transfer and position yourself as a trusted advisor for multiple generations within your client families. 5Your expertise and guidance are instrumental in solving complex financial problems, employing effective wealth management strategies, and ensuring the preservation and growth of the family’s wealth for generations to come. Your role as a trusted advisor can make a significant difference in the long-term success and sustainability of the family’s financial legacy.
When your client expresses their intention to pass their financial legacy on to future generations, your task is to assist them in accomplishing this objective. To support you in this endeavor, here are some steps you can take:
- Foster open and transparent communication with heirs to discuss the family’s values, financial legacy, and long-term goals. Clients are often uncomfortable sharing the value of their financial legacy with their heirs due to concerns about how this information may affect the heirs’ behaviour. To assist in preparing heirs for this information, it can be highly advantageous for the client to create an ethical will. This document allows the client to share their life story, including the process of building their wealth or growing their inherited assets that now form their financial legacy. This personal narrative can provide valuable context into the family’s financial journey, fostering a deeper understanding and appreciation among the heirs.
- Establish regular family meetings where all beneficiaries can come together to discuss and align their visions for the family’s wealth. These meetings provide a platform for sharing ideas, addressing concerns, building trust, and fostering a sense of unity.
- While you play a critical role in guiding families through the process of successfully growing and transferring their wealth across multiple generations, it is important to acknowledge that addressing and resolving family relationship issues may require expertise beyond your scope. Collaborating with professionals specializing in family therapy or mediation can be beneficial in addressing and resolving any underlying family relationship issues that may impact the wealth transfer process.
- Collaboratively develop a family mission statement that encapsulates the shared values, goals, and aspirations of the family. This statement serves as a guiding principle for decision-making and reinforces a sense of purpose.
- The lack of financial knowledge is one of the most significant impediments to the successful growth of a family financial legacy as it passes from generation. To avoid this result, promote financial education among the heirs.
- Mentorship between generations, where older family members can pass on their knowledge and experiences to younger heirs is invaluable. Develop a clear succession plan that outlines roles, responsibilities, and expectations for each heir.
- Continuously review and adapt the family’s values, goals and strategies as circumstances change. Regularly assess progress, celebrate achievements, and address any conflicts or challenges that may arise.
By implementing these steps, your clients can achieve their goals of bringing their heirs together, sharing the intricate details of the family’s financial legacy, fostering a sense of unity, and shared purpose in working toward the family’s common goals. This process will ultimately lead to the successful transfer of family wealth to both current and future generations.
Opinion article by Jan Blakeley Holman, Director of Advisor Education at Thornburg Investment Management
Important Information
The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management, Inc. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.
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