Five Opportunities Posed By The Great Wealth Transfer

Posted On October 21, 2019

The coming years will bring a mass transfer of wealth on a scale that we’ve never before seen. As the ‘Baby Boomer’ generation of individuals born between the years of 1945 and 1964 begin to reach retirement age, their wealth will start to transfer down to younger inheritors. It’s anticipated that as much as $68 trillion dollars will change hands over the next 25 years

$68 trillion is certainly a lot of money to handle for younger generations, and in the case of Millennials, many will suddenly find themselves in possession of unfathomable volumes of wealth. 

Many experts predict that the ‘Great Wealth Transfer’ will be the start of a tumultuous time for a wealth management industry that’s gotten used to the relative comfort of catering to familiar clientele over previous decades. 

With the inevitable arrival of scores of younger clients, there will be a widespread need for modernisation and changes in approach for wealth management firms worldwide. But the Great Wealth Transfer could also herald a time of opportunity for many businesses in the industry. 

Here’s a look at five of the most significant opportunities that could be presented by the arrival of the Great Wealth Transfer: 

Brand new clientele

The Great Wealth Transfer will bring with it an unprecedented number of new prospective clients looking for financial advice. 

This will inevitably cause some industry volatility as wealth advisors used to interacting with the same ‘Boomer clients for decades will need to adapt to a brand new market. 

Baby Boomer's Wealth

(Chart showing that investable assets will increase almost two-fold over the next decade and maintain this rate throughout the first half of the 21st Century. Image: Motif Investing)

While many inheritors will likely be influenced by their older family members, opting to call on the same wealth management firm for investment advice, there will be plenty of new arrivals on the market looking to find the right kind of business to help them.

According to Investopedia, only 35% of inheritors have been prepped by their benefactors on ‘how’ to inherit wealth – meaning that there’s going to be a huge volume of new clientele seeking professional advice. 

The industry of wealth management will be under pressure to grow sufficiently to welcome this unprecedented spike in new investors, but it’s fair to say that having so many new customers enter the market will present an excellent opportunity to win more clients for ambitious smaller firms that are ready to scale. 

Necessity of change

Arguably the most significant opportunity for the industry of wealth management is the necessity of change brought on by the Great Wealth Transfer. 

Wealth management firms have relied on a largely familiar client base for decades, but the arrival of the Great Wealth Transfer will mean adapting to the wants and needs of younger users in order to win their custom. 

Given that Millennials will be one of the largest groups of beneficiaries from the passing down of wealth, this presents itself as a great opportunity for the industry to modernise its processes. 

To deliver the best possible user experience model, wealth management firms will need to digitise their services. Apps and online communication methods will need to be utilised to maintain the satisfaction of younger investors. 

Digitising wealth management may not be the most seamless process for more experienced advisors, but delivering a Client Relationship Management system that caters to more technology-dependent clientele will help smaller businesses to thrive when the disruptive influence of the Great Wealth Transfer takes hold

Industrial clean slate

Industries can transform in-line with the wants and needs of the people it’s designed to cater to. The arrival of large-scale Millennial investment will result in wiping the slate clean for many advisors. 

There’s more than just a generational gap between Millennials and ‘Boomers. According to a report by Broadridge, Millennials are more risk-averse and socially conscious clients than those of older generations. 

The cautious and clear-eyed approach of Millennials may challenge the way that the whole of the industry interacts with its customers and handles their money. 

Broadridge summarises the ramifications of Millennial investors for the wealth management industry thus:

“Millennials came of age during the financial meltdown, and its lessons have had a lasting effect. They have a stronger grasp of financial issues about risk, returns, diversification, and global markets. They realise that investment costs matter as much as returns, that index funds typically do as well as active funds, and that they can use derivatives to de-risk portfolios. 52% indicate that they will select providers for their global reach.”

While this may sound like a difficult challenge for wealth investment organisations to adapt to, it also means that firms have an opportunity to outpace competitors by altering their approach to investing to suit Millennial clients moving forward. 

Entering a new era of transparency

Investopedia claims that what benefactors and inheritors don’t know could hurt them. Fundamentally, we’re looking at the arrival of millions of new prospective clients that have little-to-no experience of handling large sums of wealth. 

Because of this, it’s important that wealth management firms adopt an approach that helps to fill any knowledge gaps. Massachusetts-based wealth management firm, The Jamrog Group, points to two issues that need to be overcome when financial literacy is scarce among clients.

The first issue revolves around a lack of understanding when it comes to taxation, while the second is based on a lack of planning ability with investments. 

While the ‘Boomer clientele of today will already have a strong understanding of these topics, the notion of wealth will be an unfamiliar one to many inheritors, so an extra emphasis on transparency is essential. 

Mary Ellen Hancock, senior wealth strategist at PNC Wealth Management believes this will be a great opportunity for firms to establish better relationships with new clients by laying down a fresh foundation of knowledge in the current industry climate to them: “This enables inheritors to understand the goals and objectives of their loved ones and begin to plan for their inheritance, so they have an idea of what to do with it when they receive it,” Hancock explained.

Capitalising on uncertainty

Fundamentally, industry disruption typically leaves fertile grounds for opportunity. Established firms will need to adapt quickly to ensure that they maintain their status, while smaller ambitious companies will see the Great Wealth Transfer as an opportune moment to scale in order to compete. 

With Millennials standing to inherit scores of wealth, the quickest to adapt to this massive shift in clientele will be the ones that thrive in the new market.

The only certainty that will come with the arrival of the Great Wealth Transfer can be found in the level of uncertainty that it will cause in the industry. The businesses that move quick, modernise, and capitalise on the wants and needs of younger investors will be the ones that gain the most from the disruption.

Written by Daglar Cizmeci
Investor, Founder and CEO with over 20 years’ industry experience in aviation, logistics, finance and tech. Chairman at ACT Airlines, myTechnic and Mesmerise VR. CEO at Red Carpet Capital and Eastern Harmony. Co-Founder of Marsfields, ARQ and Repeat App.

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