The Coming Great Wealth Transfer Requires a Discussion of Values Among Family Members
Wednesday, July 12, 2023
July 2023
The Coming Great Wealth Transfer Requires a Discussion of Values Among Family Members

Wealth advisors that facilitate those discussions will be a step ahead

By Jaimie Seaton

We’re on the cusp of the greatest wealth transfer in history. By 2045, an estimated $72.6 trillion in assets in the U.S. alone will have been passed from older generations to millennials, Gen Xers, and Gen Zers — with $11.9 trillion going to charities. The transfer will have a profound impact on the socioeconomic fiber of the United States as well as the individuals involved. It also represents a huge opportunity for financial advisors, but that opportunity comes with risks and challenges. Chief among them will be keeping the account.

According to research firm Cerulli Associates, only 22 percent of affluent investors will choose to work with the same advisor as their parents. The same study found that a quarter of investors under 30 began their advice relationship through a family referral, but only 4 percent chose their parents’ advisor. 

Those numbers may seem daunting, but they can also be a wakeup call for advisors to understand the issues around multigenerational wealth transfers and implement strategies to address them. Advisors who engage with their multigenerational clients and prepare them for the transfer will be in a much stronger position with those clients down the road.

“It’s critical for advisors to have a relationship with the entire family and engage with the next generation early to ensure they keep the relationship through the wealth transfer,” says Maddy Speal, 26, client success lead at Ethic.

Being Prepared

Advisors can start by educating themselves and their clients about the challenges families may face through the wealth transfer process and beyond — beginning with the need to discuss the transfer itself openly . 

A recent UBS survey of global investors with at least $1 million in investable assets found that 50 percent of those surveyed had not shared critical information with family members, including how much their assets are worth, how they intended to divide them, or even where they are held — and roughly 40 percent of investors have no formalized inheritance plan.  

This is where wealth advisors can bring value. They can encourage open discussions among family members about inheritances while being sensitive to the fact that families and individuals have different comfort levels around disclosing detailed information. 

“I've worked with a few clients who weren’t ready to share the dollar amount of a portfolio that is being passed down, so they were more comfortable speaking about the values that the family wants to incorporate in their wealth,” explains Speal. “Talking about the themes or the issue areas that are prioritized in a portfolio is also a great way to talk about wealth planning with the younger generations.” 

When families are transparent about their portfolios, Speal suggests that advisors take the time to get to know the family members’ passions and try to get individuals excited about their financial portfolios, including investments that might be of particular interest. This is crucial when working with younger generations who may be inexperienced or ambivalent about investing. 

Another challenge is family dynamics. One often repeated survey of individuals with at least $3 million in assets found that 70 percent of wealthy families lose their wealth by the second generation, and a full 90 percent lose it by the third. One primary reason cited is familial discord. That same survey found that 78 percent don’t believe the next generation is financially responsible enough to handle an inheritance. Wealth advisors who address these issues head on through open and honest discussions with all generations can help them defy the statistics.  

Don’t Get Caught Up in Labels

When it comes to the great wealth transfer in particular, one common narrative is that the Silent Generation and baby boomers feel trepidation about passing their money down to younger generations because they believe there’s a misalignment of values. The U.S. Trust Company maintains that 50 percent of wealthy parents lack confidence that their children will be ready to handle a financial inheritance. Younger generations themselves may feel ambivalent about the very nature of investing or want to ensure that their investments positively impact issues they care about, such as climate change and social justice. 

In actuality, different generations within families may have more in common than they think but could be caught up on preconceived notions around ESG (environmental, social, and governance) investing, which has become highly politicized. Critics of the term may have a point. There’s much confusion (and a lot of greenwashing) in the space. Again, the wealth advisor can play a pivotal role in fostering open dialogue. Unfortunately, many advisors are reluctant to discuss ESG (or sustainable) investing with their clients — to their detriment.

“We've seen where, because of their own opinions on sustainable investing, an advisor doesn’t have that conversation with their clients, and they end up losing the business, or it results in an unfavorable outcome for the client,” says Morgan du Plessix, 25, a senior relationship manager at Ethic. “ESG is a term that has become very triggering. At Ethic, we try to move away from all of the noise, which is a different approach than other players in the space.” 

No matter what their opinions about ESG, impact investing, sustainable investing, or full-information investing may be, the younger generations are firmly in favor of investing in a way that aligns with their values and the impact they want to make. In a recent survey conducted by The Harris Poll, 92 percent of millennial and Gen Z investors agree that risks and opportunities related to “responsible investing” always belong in the investment process, compared to 68 percent of baby boomers and Gen Xers — a number that is not insignificant itself. 

Milo Kremer, 24, a relationship manager at Ethic, notes that, for most millennials and Gen Zers, sustainability and social responsibility aren’t external ideas; they are part of the core of who they are as people. 

“It comes down to a personal brand. These generations have very clear values that drive their purchasing decisions, how they spend their time, what charities they support, their community affiliations, and who they vote for. These are all important signals people are laying down online and in person,” explains Kremer. He adds that it also demonstrates how important it is for advisors to bring values and sustainability into conversations with younger generations. 

Kremer has had discussions with wealth advisors who are skeptical of sustainable investing but whose clients are asking about it. His approach is to address the issue directly and move the conversation away from the realm of ESG and more toward values alignment, personalization, and customization.

“What I care about is giving my clients and their clients the space, tools, and vocabulary to begin to define what they care about and create a sense of alignment and congruence across how they spend their time, how they spend their philanthropic dollars, and the issues they care about in their communities,” Kremer says. “The final piece of that puzzle is how they invest their family's legacy.” 

How to Align Values Across Generations

And that brings us back to fostering discussion among generations in a family to see where their values align. Older and younger members of a family often disagree on how to invest, but that disagreement may disappear or soften substantially when they dig into what they actually care about. People may use different terms and have different pet issues (and get news from different sources), but most can find common ground when they talk about their overall goals for people and the planet. For example, one family member may want to reduce pollution for biodiversity reasons, while another wants to reduce it to preserve fishing and recreation areas.

This is where the Values Mapping Exercise (VME) can be tremendously helpful. 

The VME is a robust digital tool advisors use to help clients identify their values, but it can also be used in numerous ways to foster discussion and illuminate areas of agreement. The wealth advisor can send the link to family members and then present the findings to them or bring the family together to fill out the survey.

“We've heard from advisors that had a tough time bringing the next generation into meetings, but by offering up this family workshop style session, they were able to incorporate everyone,” Speal says. “In another example, we worked with a very large family of more than 50 people across many generations and layers of cousins, who all came together for a family meeting. In that meeting, we presented the VME results  to them along with Ethic’s solutions and ways we could get involved. That really built excitement with some of the more distant relatives who previously had not been as interested in the family's investments.”

She also described advisors using the VME as a catalyst for a values workshop. Speal says a client recently held a values workshop with two lenses: one focused on philanthropic giving and one on investments. 

Du Plessix adds that advisors who work with clients on their philanthropic planning are in a perfect position to discuss investment strategies that align with their philanthropy and community engagement. She recommends advisors put together an investment portfolio that supports the client’s interest in a particular issue, such as education or human rights.

Whether using the VME or other tools offered by Ethic, the critical point is to open and continue communication among family members. When wealth advisors steer the conversation away from terms like ESG and toward values and issues that individuals are passionate about, families are likely to discover they are more aligned than they thought.

In the coming great wealth transfer, that knowledge can bring comfort to older and younger generations alike.

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Sources and footnotes

Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website – www.adviserinfo.sec.gov or from Ethic Inc. upon written request at support@ethicinvesting.com. Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.

Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek out the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.

Contributors

Jaimie Seaton is a journalist and marketing consultant with over 20 years of international experience. She’s written thought leadership for executives of global companies, which have appeared in Forbes, Fortune, and leading industry publications. Jaimie’s lived and reported from Johannesburg, Singapore and Bangkok and has written for numerous publications, including The Washington Post, Newsweek, CNN, and Business Insider.