The largest intergenerational transfer of wealth in history is taking place right now, with older generations (particularly baby boomers) Passing about $84 trillion to younger generations between now and 2045.
This “major wealth transfer” will impact millions of people around the world and could open up exciting opportunities to reshape our financial systems Redistribute wealth to support both people and our planet. But what is most pressing is that this unprecedented transfer of wealth represents a major challenge for banks, especially those that provide services to high-net-worth individuals.
Between now and 2025, $35.8 trillion (42%) of total wealth transfers are expected to come from high-net-worth and ultra-high-net-worth households, which together make up just 1.5% of all households. In most cases, the children and grandchildren of these high-net-worth individuals (potential recipients of the wealth transfer) are currently using different banks.
Younger generations are not as loyal to their parents’ favorite banks, so incumbent banks are at risk of losing trillions of dollars in investments over the coming years. In fact, 87% of children plan to take over the management of their inheritance elsewhere, meaning existing banks could see significant reductions in the size of their assets under management.
To reduce these risks, banks urgently need to engage the younger generations who are set to inherit, and this means understanding their needs, values and preferences, which are very different from those of their parents and grandparents.
At the same time, banks need to work with their existing high-net-worth clients to facilitate smooth and secure transfers of wealth to their children. This process must be digitally possible and serve the needs of all generations.
Understanding generational differences is crucial to shaping a robust wealth transfer process
To engage the next generation of investors, banks must focus on education, comfort and values.
Younger generations need appropriate support and advice to preserve and grow the wealth they have inherited. Many of them do not have the same level of knowledge and experience in investing as their parents. Shockingly, when it comes to retaining family wealth, it is appreciated 70% of wealthy families lose their wealth by the second generation, and 90% by the third generationThrough a combination of asset distribution, capital losses and inheritance tax.
It is important for banks to realize that younger generations are much more digitally literate than baby boomers. They prefer the speed and ease of digital banking, and take pride in using only the most innovative digital apps and services. In fact, by 2030, even 80% of new wealth management clients will want financial advice in a Netflix-style model Data-driven, highly personalized, ongoing, and possibly by subscription.
The majority of Millennials report that they would be open to using “digital-first” banking or fintech in their investment activities, and nearly half would be willing to shift a significant proportion of their assets to fintech in order to have 24/7 access. Greater availability and convenience.
Wealth transfer is an opportunity to bridge the digital divide between generations
The reality is that the current wealth transfer process is unclear, inconsistent, and often relies on offline personal relationships between high-net-worth individuals and their advisors. The lack of transparency and communication around intergenerational inheritance planning is an obstacle to the smooth and efficient transfer of assets.
With exceptions, baby boomers are typically less digitally savvy and more cautious about managing and transferring assets through digital channels. High net worth individuals often have complex and diverse assets, and must stay ahead of tax reform and navigate global residencies in order to maximize their assets for their children and grandchildren.
If banks are to meet the challenge of intergenerational wealth transfer over the coming years, the starting point must be the effective digitization of the wealth process, balancing the need for innovation to attract younger generations, with the need to reassure older customers about the suitability of this. and security of digital services to manage and transfer their assets.
By bridging the digital generational divide, banks can maintain and strengthen their relationships with older high-net-worth clients, help them prepare their assets for transfer and engage their children and grandchildren in the process at an earlier stage through more transparent communications.
Build customer trust and loyalty through digitally-enabled wealth transfer
A transparent, digitally-enabled wealth transfer could give older generations a sense of control, with features that enable them to share information and be more transparent with the next generation about what they inherit. It can also help families retain the knowledge and relationships built over many years, by combining intuitive digital experiences with the expertise and personal touch provided by advisors.
It is crucial that, through a strategic and digitally enabled wealth transfer process, banks are able to engage new generations by creating personalized content based on their specific interests. In doing so, they can help Millennials and Gen Z deepen their knowledge and confidence around investing, build brand value and reduce the chances that younger generations will take their inherited wealth elsewhere.
Increasingly, many high net worth individuals are not waiting for the end of their existence to pass on their wealth, and are pursuing a different strategy outside of traditional wealth handovers through wills and trusts. Digitally enabled wealth transfer makes “giving while alive” much easier on both sides, which in turn provides banks with an ongoing opportunity to offer innovative services to younger customers.
Senior Vice President
Regional Head of Financial Services, Infosys
About the author
Mika Helbig He is currently responsible for Infosys Financial Services across continental Europe. He has nearly 30 years of experience in consulting, business development, customer relationship management and alliance management. At Infosys, he is the lead client partner for several key relationships, and leads the Mortgage Council, a global team focused on growing Infosys’ business in the mortgage sector. In his current role, Misha is focused on ensuring that Infosys clients get maximum value from the Infosys organization and that Infosys serves as a strategic partner in enabling clients to achieve their business and technology goals. He has previously worked at Infosys with Infosys Australia and New Zealand in financial services as well as insurance, health and life sciences. Mika is currently based in Amsterdam, Netherlands. He obtained a master’s degree. He holds a PhD in Business Administration from the University of Groningen, and a Master’s degree in Sports Management and Facilities Management from Ohio University in the United States. In his spare time, Misha loves spending time with his wife Hannah and son Jules, keeping fit doing CrossFit and reading (mostly crime novels and management books).
