I have written on this subject several times and as I continue to read and research this topic with great curiosity, I came across a fascinating 2015 study from Deloitte University Press called "
The Future of Wealth in the United States"
by Val Srinivas and Urval Goradia.
It is well documented that demographic shifts have been a major influence over the years in economic growth as measured by GDP for a variety of reasons (see
Board of Governors of the Federal Reserve System - September 28, 2016, The Effects of Demographic Change on GDP Growth in the OECD Economies - Jinill Kim). Furthermore, demographic changes create massive changes in societal thinking and behavior. Today, as the baby boom generation moves toward their retirement years and the millennials (a larger cohort even than the boomers) reach maturity, never has a demographic shift been so meaningful. While this is not intended as a deep dive into this topic, it is important to note that change is occurring, and it is happening fast; most of it is driven by a massive shift in demographics in the US and around the world.
Consider housing as an example of the impact of demographic shifts. In a 2015 study by Daniel Bachman titled "
Housing Construction: What Happens When the Kids Finally Leave?",
the author states that "slowing population growth will be a major factor affecting housing prices in the future". Further research indicates that one of the few housing segments that may thrive is housing for the elderly. This is nothing more than the result of supply and demand caused by demographic changes compounded by the shifting attitude of millennials that home ownership, in the traditional sense, is not paramount to their lifestyle.
Now let's shift this conversation to what really matters to us as wealth management advisors. I would argue that those of you wanting to thrive in your business over the next 10 -15 years should pay close
 attention to the generational wealth forecasts in the Deloitte University Press study referenced above.
The implications for wealth management are massive. The study begins by forecasting that US household assets will increase from $87 trillion to over $140 trillion in 2030 (ONLY 12 years from now), of which $64 trillion will be in investable financial assets. The study goes on to state the following: "
This means that in 2030, between $150 billion and $240 billion in wealth management fees could be up for grabs
."
Did I get your attention? 150 billion to 240 billion in wealth management fees!
I frequently write and talk about the massive wealth transfer shift in the next 30 years. It is important to recognize that in the next 12 years alone, by 2030, "approximately $24 trillion will be transferred in bequests (after taxes and charitable giving), reflecting spousal, inter-, and intra-generational wealth transfers", according to the above referenced Deloitte University Press Study. This not only includes investable assets but vast sums in non-liquid assets, such as real estate and closely held businesses which also must be considered carefully as they have their own set of generational wealth transfer characteristics.
You will notice in the graph above that Gen X and Millennials will benefit from the bulk of the wealth transfer occurring between now and 2030. By 2030 the combined financial assets (investable assets) of Gen X and Millennials will exceed $33 trillion growing at a compounded rate of 11% and 15% respectively. We have discussed the concept of "money in motion" in a previous ONEIdea, titled
Wealth Preservation: Money In Motion
which highlights the risk of NOT building generational bridges with Gen X and Millennials as they are the ultimate beneficiaries of this enormous wealth transfer.
Keep in mind that these numbers DO NOT reflect the almost $12 trillion dollars of individual life insurance in-force in 2016 as reported by the American Council of Life Insurers (ACLI). Although much of that insurance will not result in claims due to lapses or term expirations, in 2016 alone the life insurance industry payed $76 billion to life insurance beneficiaries. If the trend continues, this will result in an additional $1 trillion that will add to the wealth transfer from 2018 to 2030. This amount will be fully liquid and is an incredible opportunity for generational wealth advisors to add to assets under management if generational bridges are created.
I am a strong believer that the wealth manager of the future MUST integrate the term "generational" into their wealth transfer practice as the massive demographic wealth shift continues to occur.
If you plan on surviving and, more importantly, thriving during this historical period, consider a few ideas that you can begin to weave into your practice immediately:
- Meet and get to know your client's spouse and children. This is critical if you want to maintain the book of business that you have worked so hard to garner and build from your client base. Engage the spouse and the next generation through an integrated family wealth counseling approach. Focus not only on financial aspects, but on family mission and values, philanthropic and civic endeavors and ultimately, family legacy. There are numerous services and coaching programs to help you integrate this approach into your practice. One of my favorites is Lee Brower's Empowered Wealth. Another firm that has been doing this sort of work for almost 50 years is The Williams Group. These resources will meaningfully enhance the retention of your book of business as money moves generationally.
- Integrate risk management products into your client portfolios, specifically long-term care, life insurance and guaranteed income contracts (annuities). These products create tax favored dollars to hedge against morbidity, mortality and longevity risks by creating liquidity to pay for long term care expenses, provide guaranteed lifetime income or replenish lost income or asset depletion at death. Nothing is more powerful to a spouse or children than having you, as a family wealth advisor, assist in the care of a spouse or parent during a long-term care or chronic illness event, not just financially but in the coordination of care offered through insurance coverage. Furthermore, being the person that delivers meaningful tax-free proceeds from a life insurance policy will certainly position you as the advisor of choice for managing those proceeds for the family after the primary account holder passes away.
- Pay attention to taxes and creditor protection, and integrate dynastic trusts or family limited partnerships into the conversation. Trusts provide meaningful protection from taxes, creditors, broken marriages and children that may or may not live up to expectations and can create legacy assets for generations. Family partnerships (or family LLC's) can provide meaningful asset protection opportunities while creating discounted gifting\wealth transfer opportunities. Finally, certain assets such as qualified plans, IRAs and annuities may have confiscatory taxation at death if careful planning is not considered.
As Scottish political economist and philosopher Adam Smith once said, "riches very seldom remain long in the same families". I would expand that statement by adding that if
 riches don't remain long in the family, they may not remain long with the wealth advisor. The documented generational wealth transfer in the next 12 years and beyond will provide wealth managers a unique opportunity to continue to build thriving wealth management practices
. To greatly enhance the chances of success, you must find ways to bring the next generations along with you.
AgencyONE is uniquely positioned to provide the advanced planning and underwriting support services that you will need in order to accomplish these goals.
Please contact AgencyONE's Marketing Department at 301.803.7500 for more information or to discuss a case.
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