The Future of a Generational Wealth Transfer and How It Will Change the Investment Industry

With the older generations expected to pass on a whopping $60 trillion to their offspring in the next two decades, a generational wealth transfer is underway. This shift in assets is likely to have a major impact on the investment industry as a whole, so it’s important to understand how this will change things moving forward.

Do note that this shift won’t occur overnight. Baby Boomers will still be the wealthiest generation until 2030. Once they start passing on their assets to their children, Gen X and millennials will take over.

So, how can advisors and RIAs (Registered Investment Advisors) best position themselves for the future? 

Here’s an overview of what to keep in mind.

Why Is a Generational Wealth Transfer Occurring?

Generational wealth transfer isn’t a novel concept. It’s been happening since time immemorial. However, the sheer amount of wealth expected to change hands in the next two decades is unprecedented.

A large part of this has to do with the fact that Baby Boomers are aging. They’re getting closer to retirement age and passing on their wealth to the next generation.

At the same time, life expectancy is increasing. It means that people live longer and, as a result, have more time to accumulate wealth.

On top of that, the past few decades have seen a surging multitude of ways to manage wealth – something unavailable to the prior generations. Thus, there are more ways to preserve and grow wealth.

Future Trends Affecting Generational Wealth Transfer

For RIAs and advisors to target the right clients, they must understand the generational wealth transfer trends. First and foremost, this means recognizing that there will be an influx of new investors in the market.

Most of these new investors will be inexperienced, which means that they’ll need guidance when it comes to investing their money. This is where RIAs and advisors come in.

As wealth transfer happens, there will be an opportunity to help these new investors grow their assets and reach their financial goals. In other words, there will be many potential clients for those in the RIA and investment industries. Of course, this also means that there will be more competition for clients. To stand out, it’ll be important for RIAs and advisors to focus on providing quality service and creating customized investment plans.

Another trend to remember is that investors will increasingly seek socially responsible investments. Currently, sustainable investments are valued at $30 trillion, a tenfold increase since 2004.

The younger generations drive heightened interest in investing in ESG (Environment, Social, and Governance). In fact, millennials are responsible for the growth spur in sustainable investing. Other generations followed suit. The steady increase in investments shows that ESG investments aren’t merely a feel-good exercise or a fad. They are here to stay.

Thirdly, Generation X will hold the most wealth by 2030. Therefore, RIAs and financial advisors need to focus on this generation primarily. To appeal to Gen X, advisors and RIAs must show that they’re technologically savvy and understand the needs of this generation.

Most importantly, the market will now see an influx of women investors. Gone are the days when investing was a man’s world. Today, women are just as involved in the investment industry, thanks to the fact that women are now broadly more financially literate and have higher earning potential.

What Does All This Mean for RIAs and Financial Advisors?

The above generational wealth transfer trends present both opportunities and challenges for RIAs and financial advisors. On the one hand, there’s a huge potential market to tap into.

On the other hand, this also means that the competition will be stiffer than ever before. Plus, advisors will have to understand new generations’ mindsets and investment preferences.

For instance, as more women investors enter the market, advisors must understand how they approach investing. Studies show that women investors are more risk-averse than men and prefer investments that will grow steadily over time.

Wells Fargo research also found that women get a higher ROI (return on investment) without taking as much risk as men. As a result, they get higher risk-adjusted investment ROI than their male counterparts.

Besides accounting for their risk-averseness, advisors and RIAs will also have to tailor their advice to the preferences of women investors. For instance, 67% of women invest their savings in individual stocks or bonds, while 63% invest in ETFs and mutual funds. On the other hand, only 23% of women are interested in cryptocurrencies.

Likewise, RIAs and financial advisors will have to accommodate new investors in the market. These GenX and millennials will have different expectations than older investors. They are more comfortable with digital channels and expect a more personalized experience.

How Will the Future Of General Wealth Transfer Influence the Investment Industry?

The forecasted wave of generational wealth transfer will affect the investment industry in many ways. The most significant impact will be the increase in demand for investment products and services that facilitate intergenerational wealth transfer.

For instance, there will be an increase in the need for financial and estate planning services. Investors will also require sophisticated investment products to help them preserve and grow their wealth.

Furthermore, the investment industry will need to adapt to the changing preferences of investors, who will increasingly demand sustainable and responsible investment products.

The generational wealth transfer and push for sustainability will likely profoundly impact the investment industry in the coming years. Therefore, advisors must be aware of the trends and developments in these areas to serve their clients’ needs best.

How Can RIAs and Financial Advisors Prepare for This Shift?

At the moment, most of the clients of financial advisors are members of older generations. While that may work for now, this business model won’t be sustainable in the coming decade. 

Therefore, RIAs must prepare for new investors once they get their inheritance money. Here are some ways RIAs and advisors can do that. 

Rethink Retirement

The pandemic acted as a test drive for what retirement might look like in the future. For instance, many people reevaluated how they live, work, and spend time.

Likewise, they also better understood the role of technology, considering that it helped connect them to the rest of the world and provide entertainment during a time when social distancing was the norm.

As a result, it’s safe to say that retirees will demand more from their advisors in terms of planning and technology. Advisors can ask their clients about the lessons learned during the pandemic.

They can then use this insight to help them make better decisions regarding their retirement. Moreover, advisors should also keep in mind that retirees are living longer. They’re also more active.

Therefore, they need to have a retirement plan to accommodate their changing needs and lifestyles.

Plan for Inflation

With rising inflation that’s expected to continue in the coming years, RIAs and advisors need to be flexible and plan ahead. Advisors must focus on investments that do well in inflationary times.

Historically, utilities, energy, and healthcare have done well during periods of inflation. Real estate is also a good option. Advisors can also use hedging strategies to protect their clients’ portfolios from inflation.

They can do this by investing in Treasury Inflation-Protected Securities (TIPS) or other inflation-protected investments.

Take a Digital-First Approach

Millennials and GenXers are digital natives. As a result, they trust the internet more than traditional financial institutions. They prefer texts and video chats over phone calls and face-to-face meetings. RIAs thus need a solid digital presence to reach out to this target market.

It doesn’t mean that advisors should stop meeting clients in person. However, they should use technology to supplement their services. For example, they can use video conferencing for the initial consultation.

Build a Diverse Team

The financial industry has been male-dominated for too long. Now, that’s changing, and RIAs need to change with the times.

A diverse team will make firms more relatable to a broader range of clients. For example, women investors may feel more comfortable working with a female financial advisor.

Of course, it’s not just about gender. RIAs should also consider racial and ethnic diversity when building their teams.

Consider ESG Factors

Environmental, social, and governance (ESG) investing is no longer a niche investment strategy. It’s now mainstream.

As forecasted, millennials will be the wealthiest generation by 2050. Since they have driven the spur in ESG investments, this trend will likely continue in the coming years.

RIAs and advisors must consider ESG factors when making investment decisions for their clients. They should also look for opportunities to invest in companies that are leaders in sustainability.

Moreover, they need to be aware of the increased regulation around ESG investing. They should also keep an eye on how companies report their ESG data.

Leverage Technology

The effect of technology on investments cannot be stressed enough.

It’s now more important than ever for RIAs and advisors to leverage technology to remain competitive and attract new clients. Here are some standard technologies to be familiar with.

  • Robo-Advisors: Nowadays, clients expect their advisors to use technology. They want to see that their advisor uses the latest tools and software to manage their portfolios. Robo-advisors are a great way to do that. They can help RIAs and advisors save time on portfolio management and rebalancing.
  • Client Portals: Client portals give clients 24/7 access to their account information. They can view their portfolio, performance, and account statements anytime, anywhere.
  • AI-Powered Insight: Artificial Intelligence is gradually becoming a part of the investment industry. AI can help advisors gather data and generate insights to make better investment decisions. For instance, an AI-powered chatbot can help collect client information and provide recommendations.
  • Automation: Back and middle-office automation can help RIAs and advisors save time on tedious tasks to focus on providing value to their clients.

If this sounds complicated, never fear. Qdeck is a comprehensive, all-in-one solution for RIAs and financial advisors. Aggregating RIA technology into a single platform, Qdeck allows advisors to offer tech-based solutions to their clients.

Additionally, as mentioned, young investors will enter the market after getting their inheritance money. These investors are already accustomed to using Robo-advisors and financial management apps. They will want their financial advisor to offer them a Robo-advisor to manage their investment. With Qdeck, RIAs can develop customized Robo-advisors tailored for their clients.

Will Robo-Advisors Replace Financial Advisors?

The new investors who will enter the market in the next few years are digitally savvy and looking for a simple, efficient way to invest. Thus, they prefer their RIAs and financial advisors to provide them with Robo-advisors.

However, this doesn’t mean that Robo-advisors will replace human financial advisors. Here’s why:

Lack of Understanding

Robo-advisors are algorithm-based and cannot understand an investor’s unique circumstances. As a result, they cannot provide the same level of personalized service that financial advisors can.

For example, a Robo-advisor may only be programmed to consider an investor’s age when making investment recommendations. However, a financial advisor would consider the investor’s age, risk tolerance, goals, and other factors when making recommendations.

A comparative lack of understanding can lead to suboptimal investment decisions.

No Complex Financial Planning

Robo-advisors cannot provide complex financial planning services.

Complex financial planning requires a human touch. It involves understanding an investor’s goals, tax situation, estate planning needs, and more.

So, while robo-advisors can definitely supplement the services of a financial advisor, they cannot replace them entirely. Instead of seeing them as a threat, financial advisors should incorporate them into their practice to provide a more comprehensive service to younger clients.

Final Words

In summary, new investors are expected to enter the investment sector as a result of the upcoming generational wealth transfer. These investors will be interested in digital solutions, ESG, and impact investing.

RIAs and financial advisors must consider this shift in investor preferences and retirement planning to ensure they provide their clients with the best possible service.

In the wake of a younger demographic saturating the investment industry, financial advisors should rely on a cloud-based solution like Qdeck to manage all their tech solutions in one place. Providing Robo-advisor services, client relationship management portals, AI-powered insight, and automation, Qdeck offers an advisor everything they need to succeed in the digital age.

Request a demo to learn how Qdeck can help you stay ahead of the curve.

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