Demographic shifts are leaving their mark on the world in many ways and the way wealth is managed is one of them. As people live longer, they also face more sources of complexity when it comes to their wealth, including families made up of several generations, or heirs from second or third marriages. Often the members of these increasingly complex families live in different countries, each with its own tax and inheritance laws, adding further complexity to managing an estate.
Against this complex backdrop, we are seeing what is known as “The great wealth transfer”. This refers to the process over the next 20 years or so whereby older generations (the Silent Generation and the Baby Boomers, typically), will transfer an unprecedented amount of wealth to the younger generations, including Generation X, the Millennials and Generation Z. A 2022 study by Cerulli Associates put the value of this 20-year transfer at about US$84.4 trillion in the US alone; while, according to the Federal Reserve, Baby Boomers and their elders (those born in 1964 or earlier) held $95.9 trillion out of a total $147.1 trillion of US household wealth last year.
We are already seeing some historical anomalies emerging out of this. For example, according to a Forbes magazine report this year, every billionaire in the world under the age of 30 inherited his or her wealth.
Such a large transfer means families will be dealing with the complexities noted above more and more (see xxx for more comments), but it has other implications as well. Wealth is likely to become more diverse, with more female inheritors (Knight Frank, in its 2024 wealth report, notes that women make up about 11% of the world’s ultra-high net worth individuals are women; this may seem a low number, but it is up from 8% a decade ago).
It also implies that attitudes to wealth are likely to change radically. Specifically, we are likely to see shifts in attitudes when it comes to topics such as impact and responsible investing, sustainability and philanthropy.
According to a survey by Knight Frank, two-thirds of ultra-high-net-worth individuals are trying to reduce their carbon footprint, with that number at about 80% among Millennials. “Wealthy individuals will need to identify their sustainability goals, which are being driven particularly by the younger generations, and implement adjustments across all aspects of their lives to deliver these,” notes the report.
Sonia Santos, Head of High Net Worth Banking at Investec Wealth & Investment in Switzerland, gives her perspective on how to guide individuals on their wealth journeys in this changing world.
What would you see are the main challenges for ultra-high net worth investors as they face a longer lifespan? How are you advising clients when it comes to dealing with improved longevity?
When it comes to longevity, the main challenges we observe while working with ultra-high net worth investors relate firstly to their wealth planning and secondly, to the human factor of how they distribute their wealth and in how they deal with letting go of control.
Often people underestimate the complexity of estate planning, succession planning, sustaining their lives during retirement and income needs.
The challenge of distributing wealth efficiently is also quite often underestimated. On the one hand, an individual may wish to hand over their wealth, but, at the same time, may also want to remain in control of the decision-making and interfere, as it were, with the next generation, particularly with family-related members.
As wealth managers, we prioritise wealth-planning discussions and emphasise the importance of planning well in advance when it comes to succession planning and how they envision their retirement life.
We guide them on the importance of developing a retirement plan, and we aim to get to know their financial circumstances but even more importantly, their family circumstances.
Life insurance policies and health concerns are also a key part of the dialogue.
Longevity also increases complexity in other ways – more overlapping generations, more complex family relations (eg second marriages), later inheritance of wealth, etc. What are some of the trends you are seeing?
As global citizens modern high net worth investors have both complex financial needs as well as complex family relations and therefore it’s crucial that the wealth manager dedicates time to follow the life journey of the client and is constantly adapting to their needs and the reality of their lives.
Second marriages, and particular children from different relationships, add complexity to wealth and succession planning. This is particularly important when it comes to setting up trusts.
We’ve also observed a trend of inheritance and wealth transfer taking place at a later stage. Several clients have cash events at a later age than previous generations and/or that they receive a considerable inheritance because the originator of the wealth has often continued to do business after retirement, and maintains control of the businesses and wealth. This wealth is therefore distributed to the heirs at a later stage.
When you have spouses from second or even third marriages, you often have conflicting interests and this adds further complexity, requiring sophisticated solutions for succession planning and for defining common values.
Is global regulation creating more complexity when it comes to dealing with intergenerational wealth?
Intergenerational transfers offer wealth managers significant opportunities but also significant complexity.
Global families face complexities in terms of country-specific regulations, tax regimes, as well as inheritance and succession laws.
High net worth clients are also very mobile and so are their families, often with multiple homes around the world, so this has to be taken into account as well.
There’s a lot of talk about “the great wealth transfer”, with research by Forbes showing that many of the new billionaires in the world are inheritors of wealth, rather than creators. What trends are you seeing in this regard?
In the past few years, we have been observing that billionaires have accumulated more wealth through inheritance than entrepreneurship, indicating that the great wealth transfer is gaining momentum.
The next generation has fresh views about business, investing, and philanthropy, and the new inheritors are looking into new investments and new business opportunities arising from their personal interests that are often quite different from those of the initial generator of wealth.
As they inherit their parents’ businesses, investments, trusts and foundations, their focus is turning towards sustainability, innovative technologies, clean-energy transformation and impact investing.
Another trend we’re observing is a considerable wealth transfer to surviving spouses, sometimes as proceeds of divorce. Women are still often disconnected from their husband’s businesses and once the capital is deployed, they face several difficulties in understanding the structures, the investment solutions and regulation implications.
On a positive note, women are increasingly building wealth on their own. Globally, women’s wealth has shown unprecedented growth over the last decade. However, women’s financial power varies across markets and they often require different solutions and advice.
Attitudes to wealth management and gender vary across markets and cultures, and conscious and unconscious biases are major barriers that we as financial advisers need to be conscious of.
The rise of goal-oriented investing is already visible and new generations of women will drive investment trends around risk, purpose, resilience, legacy, and education. In our experience, women tend to value holistic advice highly (goal-oriented investing) and assign less importance to purely financial advice. Therefore, as wealth managers, we need to facilitate and accommodate these growing and unique needs of women investors.
To create enduring worth and preserve long-term wealth as wealth managers we have to take a proactive, personal, holistic approach, and be more involved in the client’s life rather than only their finances.
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