As Baby Boomers grow older, an unprecedented wealth transfer is on the horizon, with heirs to inherit the largest transfer of wealth in history. With approximately 73 million Baby Boomers leaving behind almost $84 trillion in assets, it is imperative to grasp the scale of this wealth transition. However, heirs often have different personal values and perspectives compared to their predecessors, creating unique challenges for family offices and financial advisors.
As we approach this great wealth transfer, it is important for financial advisors to understand the magnitude of the transfer and the impact of generational values on investment decisions. Fortunately, family offices and advisors, including venture capital, can start wealth transfer planning now to prepare for this transition and retain their clients’ heirs for years to come.
Family Wealth Transfer Strategies
To maintain a strong relationship with the heirs of their clients, family offices and financial advisors must acknowledge and adapt to the differences in generational values. Failure to understand and address these differences might lead to inheritors severing ties with their parents’ wealth managers. Those who seek to retain younger generations of clients should be engaging with them in key ways:
1. Start early.
Given the diverse age range within families, starting conversations early and maintaining frequent dialogue is essential to building a relationship that will survive generations. This facilitates an open exchange of wealth transfer planning knowledge and prepares younger generations to take over family enterprises or manage inherited wealth effectively. Start engaging early on, so heirs feel comfortable continuing to work with the advisor post-wealth transfer.
2. Establish trust that transcends generations.
Building trusted relationships with every generation of the family is critical. Listen actively and show genuine care and understanding of a family’s unique needs. Many advisors lose their relationships during the generational transfer, by failing to connect from the outset and maintaining relationships over time. Family offices that create wealth succession plans as part of their wealth transfer planning processes already have a significant advantage, as just 42% of family offices currently have wealth succession plans in place for family members.
3. Offer diverse investment options, including VC and crypto.
Recognizing the changing investment preferences of younger generations, family offices and advisors should broaden their investment offerings as one of their family wealth transfer strategies. Venture capital investments often align with the values of tech-enthusiastic younger investors and can provide higher potential returns. As digital natives, younger generations have also shown a growing interest in riskier new areas such as cryptocurrencies and blockchain technology. The more family offices can provide guidance and expertise in these areas, the more likely they are to retain these younger family members as clients.
4. Offer values-based investment options.
Millennial investors, in particular, prioritize the impact of their investments alongside financial returns. In fact, 75% of Millennials base their investment decisions on personal values, aligning their investments with companies that share their principles. This trend is more pronounced among Millennials than Generation X or Baby Boomers. Additionally, younger investors, such as Generation Z, are drawn toward environmental, social, and governance (ESG) stocks and show a significant inclination toward cryptocurrencies and non-fungible tokens (NFTs). By offering investment options that resonate with these values-driven generations, family offices can set themselves up to retain relationships across generations.
5. Embrace early-stage investing.
The early-stage investing landscape is evolving, with a younger and more diverse group of investors entering the market. Aligning with the preferences of the next generation, family offices and advisors can explore Venture Capital as an investment option, capitalizing on the desire for higher returns and the willingness to take on more risk. The digital nature of early-stage investing also resonates with younger investors who grew up in the digital era, making it a compelling choice.
As family offices and financial advisors prepare for the largest transfer of wealth in history, understanding heirs’ changing values and preferences is essential. By adopting proactive strategies like early communication, establishing trust, diversifying investment options, and embracing venture capital, family offices can navigate this transition successfully and build long-lasting relationships with future generations. Adapt to the shifting landscape, and you can meet the needs of the next generation of investors.
Image by Austin Neill