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How Advisors Should Prepare for the Clients Inheriting $72.6 Trillion

A report details which generations will inherit the most wealth in the coming decades, and what advisors must do to serve them.

Louis XIV, the French “Sun King” who built the opulent palace of Versailles, was only four years old in 1643 when he became the monarch after his father died. Most people who inherit any title or wealth from their parents are adults, not children, and wealth managers should remember that as they look ahead to trillions of dollars changing hands in the coming decades.

Heirs in the U.S. are expected to inherit an estimated $72.6 trillion in wealth over the next 25 years, and many will have gray hair when they do. Generation X (those born between 1965 and 1980) is expected to inherit an estimated $30 trillion, more than any other generation, according to an annual report by Cerulli Associates, a Boston-based research and consulting firm. Millennials are expected to inherit $27.4 trillion, Gen Z $11.5 trillion, and baby boomers $4 trillion. An additional $11.9 trillion is expected to be donated to charities, bringing the total to wealth transferred to $84 Trillion — $16 trillion more than the projection Cerulli made in 2018.

Wealth has always passed through generations but more will transfer in the next 25 years than ever before over the same length of time (at least in dollar terms). 

The annual U.S. High-Net-Worth and Ultra-High-Net-Worth Markets report is created using data collected from government sources and dozens of proprietary surveys Cerulli conducts throughout the year surveying thousands of advisors. 

Beginning to court prospective clients a decade or more before they inherit wealth might not be a priority for advisors, but it should be if they hope to manage those assets, Chayce Horton, an analyst at Cerulli analyst and co-author of the report, told RIA Intel. 

The stakes are high. More than 70 percent of heirs are likely to fire or change financial advisors after inheriting their parents’ wealth, according to a report published by Cerulli in 2021. (A similar percentage of women change financial advisors after the death of their spouse.)

Some wealth managers are already thinking about the transfer. For the second time in four years, Cerulli’s report focused on generational wealth transfer, a sign of how important the topic is to advisors, according to Horton. “We base our research and what we do around what our clients are interested in and wealth transfer has been just consistently one of the strongest desired topics that we that we put out,” he said.

Most of the $84 trillion transferring is coming from the baby boomer generation, who will account for 63 percent, or $53 trillion, of all wealth transfers in the next 25 years, according to the report.

The two generations inheriting the most are — Gen X and Millennials — are also starting to establish relationships with financial advisors.  

“Firms need to be fighting today for the preferences and relationships in that demographic if they want to benefit from this intergenerational wealth transfer,” Horton said, particularly those with high-net-worth practices, or those with the majority of clients whose households have more than $5 million in investable assets.

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Intergenerational wealth transfer is an even more pressing topic for these clients because those households will most likely be survived by their assets, Horton said.

Forty-two percent of the wealth transferring, or $35.8 trillion, is expected to come from high-net-worth and ultra-high-net-worth families, which together makes up only 1.5 percent of all households, according to the report.

“They're not going to spend out their entire balance at the wealth management firm, and those assets need to go somewhere,” he said. 

Developing relationships with clients’ children was the top factor influencing long-term growth strategy in 2021 for high net worth practices, according to Cerulli. All of the advisors surveyed considered that either “very important” or “somewhat important.”

“The practices that are retaining assets, across generations are really establishing relationships with their client’s children very early. And they’re seeking to make that a priority,” Horton said.

He emphasized that without early and constant communication, children often leave their parents' advisors if they are not part of the planning process. 

“These children of clients are in their 40s already, in their 50s, and sometimes potentially have their own advisor and that's why it's important to get involved with those children as early as possible,” Horton said. He also stressed that if the advisor tries to do this later in the relationship it may come across as disingenuous or seen as just a sales pitch. 

Family meetings and regular communication was rated the most effective wealth transfer planning strategy by high-net worth-practices, followed by educational support and organized succession planning. Other top strategies include enhancing technology systems, adding services to align with competitors, providing additional expertise in ESG and tax services, and utilizing younger employees to develop relationships with clients' children.

Holly Deaton (@HollyLDeaton) is a staff writer at RIA Intel and based in New York City.

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