The Great Wealth Transfer’s Not Just About the Money

With the industry staring down the barrel of the greatest generational wealth transfer in history, financial advisors are shooting from the hip.

According to the latest research from Cerulli Associates, an estimated $124 trillion will be passed on to heirs and charities over the next 20 years, and financial advisors will need to come up with specific business strategies to avoid letting the flood of planning opportunities slip through their fingers. “Right now, a lot of advisors are at risk of not properly servicing families,” said Chayce Horton, senior analyst at Cerulli.

Of the mountain of money in motion, Cerulli expects $105 trillion to flow to heirs, while $18 trillion will go to charity. Of the inherited portion, $62 trillion is expected to come from families that already qualify as high-net worth and ultra-high-net worth. While the industry has evolved to include more comprehensive services, Horton said it is crucial to move aggressively beyond the traditional financial advice model when “primarily a male advisor was servicing male clients.”

“It’s also important for advisors to focus on serving the whole family, because children and spouses who feel like they’re not a priority of the advisor will take their business elsewhere,” he said.

All In the Family

Across the financial planning industry, the great wealth transfer is not necessarily a surprise, but it is being addressed in varying ways.

“We’ve been hearing about this for a number of years and the reality is, many advisors are not at all prepared to capture or retain those assets,” said Abby Salameh, chief growth officer at RFG Advisory. One reason is that different generations prefer to handle their finances in different ways.

“If you look at the preferences of millennials and Gen Z, they tend to prefer a more digital and transparent approach to financial advice,” she added. “They value personalized service, social responsibility and greater transparency; they also seek financial education and empowerment, often through online platforms and mobile apps.”

Making the wealth transfer a high priority, RFG hired a chief behavioral officer and educated its advisors on the “emotional side of money,” Salameh said. “Advisors who are not adequately prepared to serve this market will be the loss leaders of the assets.”

Come Along, Children

Mitchell Kraus, principal at Capital Intelligence Associates, stresses the importance of getting to know your client’s family and encouraging them to talk about money across generations. Kraus’ advisory firm specializes in legacy planning and multi-generational work.

“Our rule is that we automatically consider all our clients’ children and their parents to be clients, even if they are below our minimums,” he said. “We find it’s just as important to have future generations prepared to receive their inheritance as to provide the most efficient way to do so.”

If there was any doubt about the significance of the unfolding wealth transfer, look no further than Charles Schwab’s recent minority ownership stake in the estate-planning platform Wealth.com. The deal illustrates how the largest financial services companies are positioning their businesses to capture clients and assets right alongside independent financial advisors.

Thomas Kopelman, lead financial planner at AllStreet Wealth, pointed out an often overlooked aspect of the great wealth transfer in that just as older investors are passing assets to heirs, aging financial advisors will be passing clients and accounts to younger generations of registered investment advisors.

“There are a ton of advisors who are set to leave the industry in the next 10 years while assets will be transferring and the way to help ensure these assets stay within your firm is by focusing on financial planning with the family,” he said. “Work with the parents and the kids, because the way you win with the younger generation is through financial planning and helping them face all of the big decisions in their life.”

Man, I Feel Like a Woman. Another twist in the wealth transfer is something Cerulli calls the interspousal transfer. Running alongside the larger $124 trillion transfer of assets to heirs and charities, Cerulli estimates that control of approximately $54 trillion will transition to a surviving spouse over the next 25 years. Jon Foster, president and chief executive of Angeles Wealth Management, describes this as the “great horizontal wealth transfer,” which he believes is “more compelling and timely” than the larger wealth transfer.

“This is the first movement of these assets from being controlled by men to controlled by women,” he said. “The wealth management industry is absolutely not prepared for this as only an estimated 25% of financial advisors are women.”

While the general transfer of asset oversight from men to women doesn’t necessarily nullify the value of male advisors, it does underscore the potential advantages of a more diverse advisory force. On that point, Cerulli’s Horton said advisory firms can benefit from employing a diverse team.

“Advisory firms are holding family meetings and even hosting social events for next-generation clients,” he said. “They are even creating family mission statements to expand their reach.”

Only a Generation Away. David Demming, president of Demming Financial Services, has been in business for more than 45 years and is on the fourth generation with some of his clients. “We reach out and connect with beneficiaries long before they inherit,” he said. “It is why we retain the vast majority of them when the prior generation passes.”

Yet according to Cerulli’s research, only about 30% of advisory firms rank developing relationships with clients’ spouses and children as a top priority.

Thomas Van Spankeren, principal and wealth advisor at Rise Investments, is newer to the business but has made it a priority to focus on the generations of clients positioned to inherit a slice of assets over the next several years.

“We believe this cohort has great long-term potential,” he said. “We believe establishing trust and relationships early on is a key step to increase the likelihood we benefit from the great wealth transfer.”