Thirty Trillion Dollars: The Great Transfer

Thirty trillion dollars.   This is the value of financial and non-financial assets that will change hands in the next forty years.   This is known as “The Great Transfer”. It’s been talked about for a while, but now it is here.   Of that $30 trillion, approximately $18 trillion will be in investable assets.

Between 2011 and 2016, approximately $2 trillion was passed onto heirs.   However, it is estimated that between 2031 and 2045, $11 trillion will be changing hands. That equates to 10% of the total wealth in the United States being transferred to a new generation every five years.  

The acceleration of this transfer, combined with the differences each generation has with respect to the requirements and expectations of the advisors that serve them, makes this massive transfer the defining issue for the wealth management industry.

This is a big problem.  

Why? Because the average age of an advisor in the US is 50. More importantly, 82% of the assets in the US are managed by advisors that are over the age of 60. Strategically, it is extremely difficult for the wealth management firm for whom the advisor works to rely solely on these advisors to manage this transfer.   Ask yourself this question: Is an advisor nearing retirement going to be motivated to build authentic, meaningful relationships with their clients’ children? The answer is no.

Why? Because the heirs, now only prospective clients, are not yet desirable.    

That said, capturing the heirs and earning their long-term loyalty can be achieved by understanding and acting upon the heirs’ needs and expectations. The gateway to capturing a meaningful piece of the Great Transfer pie is to focus on the needs of Baby Boomers first. Between now and 2025, Baby Boomers will inherit approximately $3 trillion.

Baby Boomers are still making decisions about the wealth they have accumulated, as well as the wealth they will inherit from The Greatest Generation. The capabilities advisors have and continue to refine, in general, meet this group’s demands. As far as the wealth shift is concerned, there are some key points about which advisors need to be aware with respect to Baby Boomers and their attitudes towards investing:

  1. They will be around for a long time. Baby Boomers turning 65 now can expect to live approximately 18 more years.
  2. They will retire later in their lives than previous generations.
  3. Affluent Baby Boomers have attitudes about aging that are different from The Greatest Generation. They expect to remain healthy, travel and continue working.
  4. Their heirs will be older when they receive transferred assets.

In addition, many Baby Boomers will spend some of their wealth as they move from accumulating wealth toward a new desire for income.   A longer life expectancy, and lifestyle retirement attitudes require a wealth advisor to respond to changing the advice the client receives, and how the advisor will charge for that advice.  

There is also the reality that some heirs will not inherit the full value of the Baby Boomer’s current assets.   Investable assets are effervescent.   Wealth may get distributed based upon the specific needs of their children and grandchildren. Philanthropic giving could occur while they are alive so they can enjoy and influence how those assets are used. In addition, Baby Boomers may plan on leaving assets to institutions and charities that are important to them. They will need advice so as to maximize their independence while at the same time minimizing taxes.

The attitude of Baby Boomers toward advisors resembles that of the Greatest Generation and, in general, is unlike the attitude of their children.   Baby Boomers often have long-standing relationships with their financial advisors.   Unless they have a reason to change, such as; excessive fees, performance, relegation to a call-center, poor service, etc., Baby Boomers are reasonably comfortable being led by an advisor.   While a huge shift in their expectations is unlikely to occur, some will seek more value, control and transparency from those relationships. Their children, however, are showing different preferences and are questioning the traditional value propositions; at least for the moment.   While staying current with the expectation of the Baby Boomers’ experience is important, an advisor cannot assume that their children will share those expectations.

The preponderance of evidence shows that the clear majority of advisors whether they are employed by a major firm or run their own boutique, are completely unprepared for the largest wealth transfer in history.   Managing the estate execution process for a single client, for most advisors, requires major effort. Less than 10% households use estate planning services with their primary advisor. The primary cause of asset attrition for an advisor is the death of a client.   The two-headed monster advisors face is the continued maintenance of Baby Boomer client loyalty and defining a value proposition relevant to their children.  

From what is currently demonstrated from their behavior, children of Baby Boomers have different attitudes towards investing. They expect transparency and control. They freely share their experiences and information with their peers through social media. They have no allegiance to traditional sources of investment advice.   By the time these heirs inherit the assets, they most likely will have selected various wealth management options for themselves; perhaps at their own peril.   That said, if the advice provider they choose meets their current expectations and can offer solutions as they accumulate wealth, the children of Baby Boomers will be unlikely to use their parents’ advisor. Without a compelling intercession, the assets they inherit will be moved.