SUMMARY
- An unprecedented wealth transfer from baby boomers to Gen X and millennial heirs is set to reshape the financial advice industry over the next two decades.
- A majority of these heirs are projected to dismiss their parents' financial advisors.
- This generational handover is also highlighting a growing chasm in wealth management expectations.
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As we enter an era of unprecedented wealth transfer from the baby boomer generation to their Gen X and millennial offspring, the financial advice sector is confronted with a pivotal transformation akin to climate change. Boomers, the youngest being 55 and the oldest 73, numbered approximately 74 million in 2016 per U.S. Census Bureau data. They are the financial advice industry's core clientele with assets estimated between $30 trillion to $40 trillion. Over the next two decades, a significant proportion of this wealth is projected to be inherited by their children.
This Great Wealth Transfer, as some experts have dubbed it, poses both a substantial opportunity and a substantial risk to advisory firms. A large majority of the heirs, it is predicted, will not retain their parents' financial advisors, sparking a flurry of asset reallocations over the next 20 years. The financial advisory landscape is due to become a hotbed of competition, offering major windfalls to firms quick to adapt and major losses to those slow to respond.
This situation is exacerbated by the differing expectations and habits of the younger clients. Millennials, who currently hold significantly less wealth than their parents, often have contrasting perceptions of financial advisory services, and their expectations for service delivery differ substantially. Thus, a generational chasm in wealth management is widening. As the shift towards digital transformation accelerates, the risk of client departure grows for firms that lag behind.
These shifts represent a potential existential threat to many advisors, but the high costs associated with catering to the millennial market—compliance, technology, and personnel—can be daunting. Despite this, forward-thinking firms, like Creative Planning, are investing in this space, anticipating the massive wealth transfer and adopting multi-generational financial planning strategies to ensure they are well-positioned for this change.
However, even this proactive approach doesn't guarantee the retention of a client's heirs. Loyalty to a parent's financial advisor is often lacking among the younger generation, signaling a need for the financial advice industry to reassess and redefine their value proposition. Firms must prove they can deliver services that resonate with younger clients, or face the risk of obsolescence in the wake of this Great Wealth Transfer.
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