Preparing for the great wealth transfer

Are you ready for the greatest transfer of wealth in history? Coming up, we frame the opportunity and share some practical advice.

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From Thrivent Asset Management, welcome to episode 53 of Advisor’s Market360™. A podcast for you, the driven financial advisor.

Here’s a big number for you: $84 trillion. According to a report from last year published by Cerulli Associates, that’s the amount of money expected to be passed down from baby boomers over the next 25 years in the U.S. Younger family members, the majority of whom will be millennials, are projected to receive $72.6 trillion of that wealth, while almost $12 trillion will be distributed to charity.

As a financial advisor, you have an important role to play in this generational migration of wealth. The opportunity to make an impact and expand your business is here – according to some metrics, the greatest transfer of wealth in American history has already begun. So, why not plan ahead for the peak of the transfer and start including families in client conversations? It’s a big shift and could make a world of difference for the future of your practice, and the future of your clients’ families.

The pressure is on, but we want to help. In today’s episode, we’re covering some practical tips on following the branches of the family tree and what to expect when building advisory relationships with millennials.

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What steps can you take now to be prepared for the great American wealth transfer? The most important step is to adapt your business model to support family and multi-generational engagements. In fact, research suggests that family meetings and regular communication is the most effective wealth transfer planning strategy for high net worth clients.

So, how do you adopt a multi-generational approach? Start by having your older clients bring their children and grandchildren to the table – literally. Or, let’s leave no stone unturned, consider the flipside: younger clients can introduce you to their parents and grandparents. In either case, you should be encouraging all your clients to make those invitations. Then you can begin having those important discussions around legacies and wealth transfers. And help your clients understand that it’s never too early to start planning.

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Attracting the next generation must be a core business and marketing strategy. And for our discussion today, we’ll keep the focus on the millennial generation. Members of this generation are currently between 27 and 42 years old. According to a report from Cerulli Associates, millennials had an average net worth of more than $278,000 in 2021, which reflected a 23% annual increase since 2016.

Research also shows that 59% of millennials identify as advice seekers. This flies in the face of the perception of this generation being more comfortable handling their finances via online platforms and robo advisors. This may be because this generation is now in a place where they are making important decisions about getting married, starting families, buying homes, and funding retirement accounts. They are actively looking for the kind of advice you can provide.

Also be aware that millennials and Gen Z are “crypto literate,” and advisors should be, too. A quarter of affluent millennials reported owning crypto in 2021 according to the Cerulli report. Thus, they’re likely to bring their crypto assets with them into new advisory relationships.

We’ll circle back with more things that are good to know about the millennial generation shortly. But first, let’s talk about the family tree.

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Keeping the generational wealth of your clients within your practice will be increasingly important in the coming years. To get the process started, you may want to deploy the family tree strategy.

As the name implies, you create a family tree for each of your clients. Start by filling in the names of each family member in the tree, from parents to children to grandchildren. Map out marriages and the children of each. Who are all the potential beneficiaries of the client’s legacy? Learn the family dynamics and nurture expectations for future generations. Understanding of all the characters in a client’s life story is key to building a multi-generational relationship.

Best of all, having a family tree for each client is a great tool to use at every meeting. Reviewing the tree can spark deeper discussions about your client’s hopes for their legacy and plans for transferring their wealth. You could even use the family tree as a value-add that can be mailed out to members of the family – a reminder for them to keep the discussion front of mind.

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With the family tree as your guide, you can start building towards more multi-generational, family engagements. As you move your practice in this direction you have to remember that families are messy. It’s important to understand and appreciate the human element and the deep bonds and, potentially, friction that can exist between generations within a family.

For many families, talking about money can be difficult. Some families simply haven’t communicated expectations and are starting from a blank slate when they come into their first meeting with a financial advisor. But it’s important that all parties take the first step of simply showing up. This shows that they are willing to make the time and are open to discussion.

Also be aware that there may be a misalignment on financial priorities between parents and their children. An advisor needs to ensure that long-term plans aren’t derailed, while at the same time showing an understanding and appreciation for the goals and philosophies around money that each generation holds. It might feel like a juggling act on your part, but the key is to ensure that each family member understands that you’re acting in their best interest, without judgment.

If family members aren’t ready to talk about detailed financial plans, take smaller steps. Clients could invite their children to listen in during their next annual review; as previously mentioned, showing up is critical, so making it clear that it’s an invitation to simply listen might help take off the pressure. You could also meet virtually or over coffee with your clients’ children to educate them on topics that will become pertinent in the future. One such opportunity exists if your clients have set up a trust, you should meet with their children to discuss how trusts work. This will help ease them into the picture and can prepare them for bigger family meetings.

Most importantly, be prepared for emotions. Act as a moderator. To help build bridges, a starting point could be defining shared values. Defining common ground for all will not only ease tension between generations but can also provide a great foundation for developing financial strategies for each party.

Now, of course, not all family meetings are going to be an arduous affair. It’s possible that working with many families will feel like a walk in the park, with individuals showing utmost appreciation for your attention. But, as with most things in life, it’s good to be prepared for anything.

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As you are thinking more about multi-generational relationships, we would be remiss if we did not help you understand the idiosyncrasies of the millennial generation. Again, while Generations X and Z will have their share of the wealth, millennials are poised to benefit most from the great wealth transfer. And, broadly speaking, winning them as clients will take some different approaches than what you might be used to.

It’s important to know what you’re competing against. Nowadays, millennials have many options for managing their money. There are lots of finance apps and digital platforms that are just a click away. Millennials can also be swayed by influencers who cast a wide net, broadly sharing financial and investing solutions on social media—things that may not be appropriate for each individual in their audience.

In terms of the millennial mindset, their formative years were marked by major societal disruptions such as 9/11, the Great Recession, and more recently, the pandemic. That may have left them lacking optimism and a reticence for planning for the future. With that context in mind, what are millennials looking for in an advisory relationship?

First, they want help mitigating risk based on their life experiences. They also desire flexibility, options, and an understanding of their perspective – their “why.” Millennials also want diversity in advisor teams and the ability to text – yes, text – their advisor. And most importantly, they want to know that they’re in a judgment-free zone.

So, how does this manifest in the advice, products and services you offer this generation?

A major factor to keep in mind is that many millennials are still repaying student loan debt. This debt can be a major obstacle that delays the financial milestones reached earlier by past generations such as homeownership and funding retirement. Conversations about setting aside money for later might be a non-starter if, say, a third of their paycheck goes towards this debt.

In terms of advice, you may want to start with the basics. They could be embarrassed by the fact that fundamental financial planning concepts have eluded them up to this point. This characterization may sound patronizing, but research suggests that only a quarter of this generation is financially literate – they need your help. From a multi-generational perspective, they will need help understanding where a will comes in, how a trust works and the importance of selecting and updating beneficiaries. Of course, other mainstays such as retirement planning also apply.

Perhaps more so than other generations, millennials are interested in values-based investments. They want to invest in companies that have a mission that resonates with them, such as those in an ESG fund.

And finally, as you consider how to communicate and engage with millennials, you may have to add to your toolbox. Advisors should consider all available social media channels and refresh themselves on their firm’s policies. For example, if Instagram or Facebook communications are fair game, advisors should absolutely use these platforms.

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We hope you found this special episode on the great American wealth transfer to be informative and thought-provoking. All episodes of Advisor’s Market360™ are available on Apple Podcasts, Spotify, Google Podcasts, and now Amazon Music as well. Email us at podcast@thriventfunds.com with your feedback, questions and topic suggestions for future episodes. And as always, you can learn more about us at thriventfunds.com and find other insights of interest to you, the driven financial advisor. Bye for now.

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The concepts presented are intended for educational purposes only. They may not be suitable for your client’s particular situation. The suitability of any specific product or strategy will be dependent upon your clients’ particular situation. Check with your organization for any specific requirements or restrictions they have related to client related activities.

Thrivent Asset Management, a division of Thrivent, offers financial professionals a variety of investment products to help meet their clients’ needs. Thrivent Distributors, LLC is a member of FINRA and SIPC and a subsidiary of Thrivent, the marketing name for Thrivent Financial for Lutherans.