Big challenge for advisers: Helping millennials with their inheritances

The coming huge transfer of assets between baby boomers and their millennial children may present a huge challenge for financial advisers.
In the next three to four decades, the millennial generation is expected to receive more than an estimated $30 trillion from their boomer parents, according to a recent report, “The Greater Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth,” by Accenture.
At the peak between 2030 and 2045, Accenture predicts that 10% of the total wealth in the United States will change hands every five years.
According to Accenture, advisory firms must maintain a relationship with heirs by earning their long-term loyalty and trust in order to handle these enormous transfers. But with the average adviser over 49 and nearing retirement, many may not be looking to build relationships with their clients’ children.
Additionally, the financial behavior of this new generation may not match that of their parents, and advisers will have to adjust to this change.
The next generation might choose to spend the inheritance, invest it, manage the money themselves or use their own trusted adviser, said Cam Marston, president of Generational Insights.
“The millennial generation is due to receive this wealth transfer, and we don’t know what their position in life will be when this happens,” he said. “So if they receive some sort of wealth from their baby boomer parents, what is that going to do for them based on their experience trying to penetrate the job market or become fully employed?”
In the report, Accenture suggests that advisers increase client engagement on estate planning, drawing in young advisers, making deliberate plans to help clients navigate their inheritances and impressing heirs with different models.
Similarly, Mr. Marston thinks it necessary for an adviser to create a plan in order to prepare for the enormous transfer of wealth.
Not only will an adviser without a plan lose an heir as a client, but the value of the adviser’s business may diminish, he said.
Although advisers understand the significance of this impending task, their behavior suggests otherwise.
“There are models to create the relationship with the one that will receive the wealth,” Mr. Marston said. “There are models on how to position your book of business to sell or transfer within your organization; however, there aren’t many people proactively doing much about it.”
This large transfer of wealth consists mostly of boomers’ lifetime income and assets, as well as their own inheritances, Mr. Marston said.
About 17% of boomers already had inherited $2.4 trillion by 2007, while the remaining boomers stand to inherit about $6 trillion more, according to a recent MetLife Inc. study. Past studies have predicted that between 1998 and 2052, a total of $41 trillion would be exchanged among the different generations.

Related Topics: IN Research