Financial advisors will have to understand what women and young investors want if they are to retain the assets that will change hands in the years to come, according to Mike Lee, EY global wealth and asset management leader.
“Wealth managers must shift the narrative to navigate the inheritance wave,” he said.
An estimated $2 trillion to $3 trillion will pass to spouses or the next generation this year alone, and as much as $18 trillion is set to be passed on through inheritance by 2030, EY said in a new report, “How to Navigate the U.S. $18 Trillion Wealth Transfer.” The “tidal wave” of asset transfers is cresting this year, the report said.
To retain those assets and to keep prospects who are inheriting the wealth “advisors need to step into the shoes of both the bequeathing generation and the inheritors,” and that takes preparation, Lee said.
“Wealth managers who are unable to meet the needs of female and next-generation inheritors risk suffering a major outflow of assets,” the report said. “A tailored, coherent strategy and relevant offerings are key to lasting success with donors and inheritors.”
In 2023, for the first time, more billionaires were created by inheritance than by entrepreneurship, EY said. “A successful strategy for intergenerational wealth transfer is key to outperformance in wealth management. A systematic approach, harnessing proven techniques, can meet the needs of donors and inheritors alike—averting asset outflows while building valuable new client relationships,” the firm said.
That transfer of wealth will help transform advisors’ relationships with their women and young investor clients, EY said. How advisors manage that change will determine whether they will be successful in the future.
Firm leaders should be assessing their firms’ capabilities to support these groups of investors and make sure they are taking practical steps to make their firms standout to this audience; and to draw assets from competitors as it changes hands, EY said.
Firms that are not taking the transfer of assets seriously “must act now to build compelling, legacy-focused propositions centered around the needs of donors and inheritors, but “our experience suggests that many firms lack confidence in their ability to initiate such a transformation,” EY warned.
One of the keys to holding onto the assets that are being transferred is understanding the differences between the wealth creators, who are frequently the patriarchs of the families, EY said. The spouse who did not create the wealth he or she is inheriting is often less knowledgeable about the family finance and will need more assistance, the report said.
At the same time, younger investors usually have far more diverse needs than the wealth creators, the report said.
Firm leaders need to make sure the advisors have the skills they need to work with the inheritors, the report said. Specialized training is often needed to help advisors relate to the inheritors in a way that will assure the assets stay with the wealth-creators’ advisors, EY said.
That requires an intimate knowledge of the clients and an understanding of where the firms’ resources are, Lee said. “How well you know the clients you already are working with can be a key to meeting the next generational challenge,” he added.
“Wealth managers should also engage with inheritors early. Pre-emptive onboarding can pave the way for client engagement and education. In addition, firms should anticipate stronger future demands in areas such as sustainability, digital assets, alternative investments or discretionary mandates,” EY said.
“Years, even decades, may go by between the start of donors’ legacy planning and the conclusion of their inheritances. Gradual, patient client engagement is vital to building trust and creating long-term client value,” the report said.
Advisors can even develop a specific business model for working with the inheriting generation. This can make a material difference to wealth managers’ ability to capture assets as they are being transferred and it can also create the foundations of future growth with beneficiaries, the report noted.
The ability to talk with inheritors in a positive way could go a long way to making the inheritors feel better about their inheritance instead of feeling anxious, EY said. “Conversations about preserving wealth and protecting families in the event of ill health can be a useful starting point, serving as a catalyst for subsequent discussions around transition planning and legacy advice,” the report said.