In little more than two decades, approximately $124 trillion in personal U.S. assets will transfer from older Americans (ages 55-80+) to the younger generations (ages 18-54).
This is a huge moment for financial advisors as these professionals look to understand, and keep, their new client base. Currently, 43% of younger Americans plan to switch asset managers from their parent’s current provider after they receive an inheritance.
Here, we break down the data to show how advisors can shift their strategies to retain this new generation of clients. What must advisors know about Americans on the brink of inheritance?
For more discussion on this topic, check out the Visionary Advisor podcast. In this episode, The Harris Poll’s Jen Musil, Global President of Custom Research, and Melissa Schweizer, SVP of Financial and Professional Services, sit down with Total Family’s Alex Kirby to discuss how financial planners can prepare for America’s impending wealth transfer.
Download the Great Wealth Transfer Report
A new purpose for wealth – legacy building and personal fulfillment
The younger generations think about wealth and investing differently than their parents and grandparents. For instance, there is a significant generational divide in what older and younger Americans see as the purpose of wealth.
Older Americans think of wealth as a path to security (42% v 32% younger) and as a tool to live their desired lifestyle (35% v 23% younger).
Younger Americans see wealth as a way to build legacy (22% v 12% older) and to achieve personal fulfillment (18% v 8% older). Typically, we think of legacy building with older individuals, but our research shows that legacy building is a real priority for younger generations.
How advisors shape their wealth management strategies, and talk about them with clients, must shift to align with these new goals.
Legacy goes beyond the financial
The Harris Poll team ran a study for Total Family, and asked respondents to consider the relative importance of the five components of legacy (listed below):
- Cultural capital – the spirit of the family
- Intellectual capital – shared knowledge
- Social capital – shared decision making
- Human capital – physical and mental health
- Financial capital – money
While most people immediately think of financial capital when it comes to legacy, 83% of respondents agree that human capital significantly contributes to legacy. For comparison, 76% say that financial capital significantly contributes to legacy.
Additionally, 18–35-year-olds ranked cultural capital as the most important factor to a family’s legacy. Financial advisors must understand that their clients are looking beyond the financial and create a plan that aligns with these values.
Younger generations expect aligned values
When selecting an advisor, younger Americans look for someone whose values align with their own.
One of the top reasons young people plan to switch advisors is because of misaligned values (33%). Conversely, one of key reasons that young people plan to stick with their parents’ current advisor is for aligned values (34%).
Other essential qualities – younger Americans also stick with advisors who provide great communication (53%) and a high level of service (52%).
Create a collaborative client relationship
We must stop blindly following the narrative that younger generations want more and more technology. Our research finds a clear call for human-centered relationships and communication.
A plurality of young Americans say they desire a collaborative (38%) relationship with their financial advisor – 17% want a digital relationship. They want communication to be with a real person – either in-person (29%) or on the phone (24%), not over email (19%) or text (7%).
Younger generations want frequent touchpoints. Four-in-10 (42%) younger Americans say that they want to consult with their financial advisor at least once a week. (Only 4% of older Americans desire this same degree of frequent contact.)
Young Americans are confident, but want guidance
More than eight-in-10 (83%) young Americans say they are confident in their ability to manage their inheritance. But many recognize the need for professional support.
A significant number are concerned about navigating the tax (45%) and legal implications (35%) of inheriting assets. A third (34%) are concerned about mismanaging assets, while 33% feel stress from managing more (or more complex) assets.
While confident in their ability to succeed, these younger generations are often gaining access to brand new types of assets, and they will require an experienced advisor to guide them to the right decisions.
Understand the emotional and psychological aspects of inheritance
Beyond the financial, inheriting assets is usually accompanied by a complex storm of emotions. In addition to gaining financial security and unlocking new opportunities, the individual is typically navigating the loss of a loved one.
Young Americans say they are grateful (68%) for receiving an inheritance, as well as hopeful (54%), joyful (43%), and relieved (28%). But they also feel sad (27%), pressure (20%), anxiety (18%), and even guilt (15%).
Financial advisors must understand their clients’ emotional state and connect with them on a human level. Offer empathy that extends beyond the financial transaction.
A final message to financial advisors
As previously cited, 43% of younger Americans plan to switch advisors after they receive an inheritance – 16% remain unsure. This is a clear call for financial advisors to adjust their strategy if they want to retain these clients.
Well before assets pass hands, advisors must develop relationships with the younger generations – bring them into the succession planning discussion. Understand what matters to this younger client base and explain how you can help them protect what they value most.
While some factors remain outside of advisors’ control, there are many factors they can influence, such as improving communication, providing strong service, and establishing a personal connection.
Financial advising is a human-driven business. Look beyond the monetary value of the transfer and be prepared to help younger Americans navigate the emotional and psychological aspects of inheritance. The next generation wants more than a financial resource; they want someone that they can count on.
For more in-depth insights into this next generation of clients, download the Great Wealth Transfer report.