The impending wealth transfer between the Baby Boomers and their heirs could remake the financial landscape, especially for the Millennial and iGen generations who have typically struggled financially.
Yet with wealth so heavily concentrated, many expect that younger generations will not be as well off as older generations, according to the Ipsos Global Trends report. When Kirstin Hill, chief operating officer of Merrill Lynch Wealth Management thinks What the Future, she’s focused on how generations—on both sides—can prepare.
Matt Carmichael: Many are calling this impending passing of the Baby Boomer’s wealth, “the great wealth transfer.” How big of a phenomenon is this in dollars and philosophically?
Kirstin Hill: Across Boomers and the Silent Generation it’s almost $80 trillion in wealth. You would expect a significant portion to pass onto future generations. That can and likely will have a transformative effect on society, particularly through how the next gen thinks about work and home and how they spend and consume.
Carmichael: What is the role of a financial advisor in this process and how can they help families transition wealth from one generation to the next?
Hill: Financial advisors are positioned to enable exactly this kind of discussion. Our research has shown that almost two-thirds of wealthy people have not talked about their plan for how they’re going to pass on their assets. That’s not great for either generation. Some of that lack of discussion is the result of the absence of a plan and that’s where a financial advisor can help. We have next gen “bootcamps” for clients where we can help the next generation think about what it means to be a good steward of their family’s wealth and their family’s purpose.
Carmichael: Wealth in the U.S. is concentrated in few families at the moment, but that’s diversifying somewhat. What does that mean for the wealth management industry?
Hill: You see extraordinary growth today in the amount of wealth controlled by women and communities of color. When we think about generational wealth transfers, the next generation is more diverse, even inside a family, so that process contributes to the diversification of wealth. It is both a moral and a commercial imperative for us to make sure we are listening to and understanding different needs and perspectives about money, wealth and investing. In partnership with Ipsos, we explored the financial mindsets of affluent Black, Latino, and LGBTQ+ individuals and communities to further that commitment.
Carmichael: What did you find?
Hill: On one hand, you find there are many commonalities. For the Black community, as we listened to their stories and their perspectives, supporting family members is a priority, as is entrepreneurship and investing in the businesses of people they know. For the LGBTQ+ community, financial security is not a topic that stands in isolation. It is foundational to the ability to live an authentic life and be true to yourself. The Latino community is four times more likely than the general population to say their most important financial goal is planning to assist or support aging parents.
Carmichael: It has to be hard on the younger generation to plan, too, if they don’t have a sense of what the transfer will look like.
Hill: It’s the reason why having the discussion is so important. It allows for questions like: What is the purpose of the family’s wealth? How do you think about money? What do you seek to accomplish with it? Is it to give yourself the freedom to live a life that you might not otherwise be able to? Is it to take a risk? Do you want to save money to be able to take on debt, to feel comfortable taking a career risk that you wouldn’t otherwise take? Do you want to save money to give back to your family or to your community?
Carmichael: Generational wealth transfer certainly isn’t a new phenomenon. But as life expectancy increases what does that mean for the dynamics of inheritance?
Hill: You do need to think about funding a longer life experience, particularly for women. Women are likely to live a longer life and that brings with it great opportunity to be with family, to pursue new interests, but you want to ensure you’re prepared for it and prepared to seize that opportunity. You also want to plan for caregiving expenses, something I think each of us learn at some point with our own parents. For the younger generations that means perhaps there isn’t as much wealth to pass on, which adds some uncertainty to planning.
Carmichael: What can people do now as they prepare and save?
Hill: A goal of many people is giving while living. For example, many want to help their children buy their first home or help support their grandchildren’s education. It is important to take those goals into consideration when making a plan, while also taking into account your own long-term financial security.
Carmichael: How are you developing the next generation of financial advisors to serve the next generation of wealth inheritors?
Hill: We went public with statistics around the diversity of our advisor population. We think to create accountability, you need transparency. It sends the message to the market and diverse talent.