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Wealth Transfers to Hit $84 Trillion Through 2045

Industry Trends and Research

Financial advisors will need to adapt their business models to be prepared for the ever-expanding multigenerational wealth transfer set to occur over the coming decades, a new report advises. 

In fact, multigenerational wealth transfer is one of the most significant factors affecting the high-net-worth (HNW) segment, according to Cerulli’s latest report, U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2021: Evolving Wealth Demographics. And shifting wealth into the next generation’s hands will reward firms that are able to establish advisory relationships with younger clients.  

Cerulli projects that wealth transferred through 2045 will total $84.4 trillion—with $72.6 trillion in assets transferred to heirs, while $11.9 trillion will be donated to charities. 

More than $53 trillion will be transferred from Baby Boomer households, representing 63% of all transfers. Another $15.8 trillion is expected to be transferred from Silent Generation households and older, primarily over the next decade. Moreover, $35.8 trillion—or 42%—of the overall total volume of transfers is expected to come from HNW and ultra-high-net-worth households, which together make up only 1.5% of all households. 

And the wealth is compounding. As of year-end 2020, just shy of 2 million HNW households controlled nearly $25 trillion in investable assets, up from $19.6 trillion in 2019. That accounts for 45% of total investable assets held by all households in the U.S., according to the research. In comparison, HNW households accounted for 27% of total investable assets in 2010.

Who Stands to Benefit?

Generation X stands to inherit the greatest portion of assets transferred to heirs, including $8.9 trillion in the next 10 years, and totaling $29.6 trillion over the next 25 years, according to the report. Cerulli anticipates households in this generation will be receiving up to $1.5 trillion annually by the mid-2030s.

Yet, despite receiving only $5 trillion in the next decade, Millennial households are expected to inherit more than $27 trillion by 2045 and will surpass Generation X in annual receipts before 2040, the report further observes. By 2045, Millennials are expected to be inheriting close to $2.5 trillion annually.

Wealth Management Strategies

As such, the need to deliver a differentiated advisory experience based on each client’s unique needs and expectations has become more important given the expanding number of wealth management options available, Cerulli emphasizes. 

For instance, complex planning and wealth structuring tactics will be invaluable to clients as taxation becomes a more pressing worry, the report notes. According to the research, grantor trusts (77%) are by far the most common way to increase the tax-efficiency of wealth transfer events among HNW practices, followed by spousal lifetime access trusts (54%) and strategic gifting (46%). 

What’s more, as transfers lead to changes in family dynamics, as well as engagement preferences, financial services providers across the wealth spectrum must adapt their business models. “Winners of walletshare will need to be prepared for changes to their business model and open to evolving with the needs of a younger demographic,” says Chayce Horton, analyst at Cerulli. 

Family meetings and regular communication (81%) is considered the most-effective wealth transfer planning strategy by HNW practices, followed by educational support (59%) and organized succession planning (31%), according to the research. 

As to top factors influencing long-term growth strategies, developing relationships with clients’ children (78%) and enhancing technology (70%) are the top initiatives for HNW practices. Cerulli also found that two-fifths of HNW practices plan on offering more services due to client requests and 27% plan on adding services to be better aligned with competitors. Additionally, a quarter of HNW practices are considering adding a digital advice platform in the next three years.  

“Extending interfamily relationships to involve the entire range of stakeholders rather than just the current controllers of that wealth will create a greater sense of responsibility and inclusion among heirs that will help in the likely case that more complex discussions about management of the family’s wealth occur in the future,” concludes Horton.