Succession and the Next Generation: Challenges and opportunities of the great wealth transfer and how to manage them

The great wealth transfer to the next generations (millennials and Gen Z) has become a hotly discussed and debated issue amongst private client advisers.  Keen interest and debate around the intergenerational transfer of wealth and lifetime planning has extended to the wider public and popular culture thanks to the gripping (and brilliant) drama series "Succession".  Consequently, the question of intergenerational legacy, succession planning, and the resulting opportunities and challenges for those at its centre (and their advisers), has moved into the limelight.

What's so great about the coming wealth transfer?

According to the Office for National Statistics, 82% of household wealth in the UK is held by people over the age of 45.  The vast majority of that is equity held in property.  During the next decade, in the UK alone, an estimated £1.2 trillion will transfer to millennials and Gen Z from baby boomers, as the latter group disposes of that significant wealth through lifetime gifting and by inheritance on death.  The next 10 to 30 years will see millennials and Gen Z inherit a greater proportion of wealth than has any previous generation. 

This significant intergenerational transfer is likely to dramatically transform the financial and estate planning industries, particularly as advisers compete for a new client base.  The challenge is how we, as professional advisers, can attract and retain clients and manage their wealth.

What makes millennials different?

Millennials and the generation below them, Gen Z, are generally characterised as being more concerned than any previous generation about social justice, the environment, corporate governance, and the redistribution of wealth.  It is not unexpected that each generation will, in general, be more liberal in their youth and progressively become more conservative as they age. However, a recent analysis by The Financial Times, suggests millennials are bucking the traditional trend, and are the first generation not becoming more conservative as they age.

Millennials are, therefore, more likely than any previous generation to have a significant and sustained interest in socially responsible investing, i.e., an investment strategy that aims to generate a specific benefit to society or the environment, as well as financial return.

Challenges and Opportunities

The great wealth transfer is emerging at a time characterised by prolonged and complex economic uncertainty, global political insecurity, an aging population and increased concerns over environmental sustainability and the climate crisis. This perfect storm of external factors only serves to heighten the challenges of the great wealth transfer, but also offers new and exciting opportunities.

1. Evolving client objectives: The next generations have moved away, and are likely to continue to move away, from conventional approaches to investment.  Increasingly, younger generations are embracing non-traditional investment strategies and socially responsible investing.  Advisers who can engage proactively and creatively with changing client objectives will be well positioned to develop and maintain long-term client relationships with the next generation.
2. Client retention: The era of the 'trusted adviser' is at risk.  According to Capgemini’s Wealth Management Top Trends Report 2022, baby boomers tend to implicitly trust a financial adviser as their sole source of investment advice.  However, millennials are more likely to take a broad range of professional advice and undertake their own research before making investment decisions. Consequently, to avoid the risk of losing the beneficiaries of their existing clients as future clients, advisers should, as early as possible, plan and prepare client engagement strategies to convince millennials of their value and expertise as trusted advisers with the aim of cultivating a relationship that will develop over time.
3. Intergenerational conflict: Stark intergenerational differences within a family about money, politics and/or social issues can develop into conflict concerning succession planning and the future ownership and management of family wealth.  To manage, or ideally avoid, family conflict, clear and open conversations should take place regularly and as early as possible between members of each generation. 

Conclusion

The great wealth transfer to the next generation will have a significant impact on intergenerational wealth planning for legal and financial advisers, and the families that they advise.  It poses potentially significant challenges for advisers, particularly those advisers who fail to plan, strategize, and adapt to the shift in the next generation's worldview.  It also represents a fascinating opportunity for astute, future-focused advisers to establish new, exciting, long-term professional relationships with members of the next generation.