'Great Wealth Transfer' to reach $124 trillion, putting adviser relationships at a premium

The intergenerational transfer of wealth from so-called ‘Baby Boomers’ and older generations has already begun, and by the time it tapers off and younger generations carry more of the bequeathment burden, US$124 trillion dollars will have been passed on according to estimates from US consultancy Cerulli Associates.

The role of advisers in this transfer is clear, and writ large in Australia where the government is in the process of supplementing the insufficient supply of advisers with low-cost alternatives, namely superannuation funds and other institutions.

But advisers will be the first line of defence, especially for high-net-worth individuals and families that have a larger, more diverse asset base and complex transfer arrangements. Of the $124 trillion set to change hands, $105 trillion will go to heirs while $18 trillion will go to charities (figures rounded up). And more than half of the total will come from high-net-worth and ultra-high-net-worth clients.

It’s this cohort, Cerulli believes, that will need a sharper focus, with the relationships advisers engender crucial to maximising the efficient and effective transfer of vast capital tranches.

The first thing advisers need to remember, Cerulli notes, is that almost half the intergenerational transfer won’t even be intergenerational, it will be horizontal or intra-generational because it will be passed on to spouses. With women having longer life expectancy around the world, it’s also expected that the proportionate wealth of females will increase as they benefit from horizontal wealth transfers.

“Nearly $40 trillion of these spousal transfers will be going to widowed women in the Baby Boomer and older generations, creating a massive need, and opportunity, for providers across the wealth and asset management spaces,” Cerulli notes in its US High-Net-Worth and Ultra-High-Net-Worth Markets 2024 report.  

That wealth will filter down to Gen X recipients, initially, before Millennials take up the greater share; In the next decade Millennials will receive $8 trillion while Gen X gets $14 trillion. Over 25 years, however, Millennials will inherit $46 trillion.

So, while advisers need to take a whole-of-family approach to advice in order to retain clients, the focus will need to shift accordingly.

“Eventually, most of the wealth owned by older generations in the U.S. will be either donated or passed down to Gen X or Millennial heirs,” Chayce Horton, Cerulli senior analyst says. “With $85 trillion to be passed down to these generations collectively, providers that can establish relationships with, and adequately address the needs of, these younger investors will be well positioned for success.”

While the US advice market isn’t analogous to Australia’s, the breadth of the intergenerational wealth transfer means the focus on more than one generation is a global theme. In Australia, the new class of advice being set up by Treasury could provide and avenue for advice firms to provide extra services to family members of clients.

Conducting family meetings and maintaining regular communications with family is “key best practice”, according to 89 per cent of firms surveyed by Cerulli.

“Ultimately, there are notable differences in service and product preferences among women and next-generation clients compared to current client demographics, and as wealth moves, these differences are likely to shift market share in favor of firms that are best prepared to meet the needs of those recipients,” Horton says.