Some $84 trillion in wealth is going to change hands in the next 25 years, according to Cerulli Associates, most of it getting handed down from baby boomers to their heirs, and that means financial service providers are going to have to adapt their business models to keep servicing that wealth.
Cerulli, the Boston-based financial research firm, recently released the results of its study, “U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2021,” which was conducted through the end of last year, according to one of the report’s lead authors, Chayce Horton, a Cerulli research analyst covering the high-net-worth space.
Cerulli says the wealth transferred through 2045 will total $84.4 trillion, adding that $72.6 trillion will go to people’s heirs, while $11.9 trillion goes to charity. Baby boomer households will generate $53 trillion of the transferred wealth, or 63% of all transfers. “Silent Generation households and older stand to transfer $15.8 trillion, which will primarily take place over the next decade,” Cerulli said, while “$35.8 trillion (42%) of the overall total volume of transfers is expected to come from high-net-worth and ultra-high-net-worth households, which together only make up 1.5% of all households.”
Horton said in an interview with Financial Advisor that the $84 trillion figure through 2045 “was a surprise to the upside.” The last report in 2018 figured $68 trillion over the next quarter century. “So seeing $84 trillion was certainly a larger number than I think we expected, but not completely unfathomable considering the level of wealth creation, asset appreciation, real estate appreciation over the last few years,” he said.
Thirty trillion dollars is going to go to Gen X households over the next 25 years, Horton said, at a clip of $1 trillion annually by the last 2020s, while $27 trillion goes to millennial households. Millennials will reach $1 trillion a year by the mid-2030s, he said.
The massive wealth transfer is going to have huge implications for financial advisors, who are going to see this wealth pass from their primary clients to the spouses and children. If the advisors don’t have relationships with those inheritors, those assets will be managed by somebody else.
“What we find is that the most important adaptation that advisors need to implement is just to bring in stakeholders in the primary clients’ wealth as early as possible. So that’s bringing in a spouse as potentially a client of their own and bringing in children of the primary client, even if it’s just for informational meetings,” Horton said. This makes sense for both high-net-worth families and for families that will eventually create a large amount of wealth, even if they don’t have it now. The later the advisor curates the relationships with the heirs, Horton said, the more it will seem like a sales pitch when those clients are 30 years older and have found their own advisors elsewhere.
The relationships are going to matter, because otherwise advisors are likely going to be competing with the technology of the larger companies when trying to get younger clients.
“If you’re Fidelity or Vanguard or Bank of America you have the scale to provide a robo-type experience to that really young client, but for many, many, many other firms, it’s just infinitely easier to reach out to that next-gen via existing clients.”
Horton said it’s not just about adding services but changing mind set. “Bringing in younger advisors is particularly effective in establishing relationships, even if it’s just at a relationship management level rather than an advisory level. … Having a younger advisor is one of the primary tactics we see advisors implementing.”