The largest intergenerational wealth transfer in history is currently underway, with an estimated $84 trillion expected to change hands over the next two decades. But for the ultra-high-net-worth families making up a substantial portion of these funds, the prospect of passing them down to heirs can be daunting. Around 54 percent of family offices are concerned about ceding control to an unqualified younger generation, according to a recent survey from the Royal Bank of Canada (RBC). The survey, which drew from some 360 family offices globally serving families with an average total wealth of $1.5 billion, also found that only 53 percent of respondents had a succession plan in place.
Wealthy families will need to make preparations soon, as some $72 trillion will be passed down to heirs by 2045, according to Cerulli Associates, while an additional $11.9 trillion is expected to be given to charities. Around 60 percent of family offices are anticipating for this transition to take place in the next ten years, according to the RBC report—a sharp contrast to the 20 percent of family offices that saw control changes occur in the last decade.
Financial institutions like RBC are putting “a lot of effort” into readying clients for this shift, Bill Ringham, vice president and director of private wealth strategies at RBC Wealth Management-U.S., told Observer. When it comes to helping families prepare for intergenerational shifts in wealth, collaboration is key. “It’s not uncommon for us to start with ‘generation one’ to understand the purpose of the wealth, and then ultimately incorporate the next generations to really understand the transfer structure,” he said.
RBC also provides resources for families that range from helping them define a family mission statement to strengthening communication across generations to improve the success of transitions. Discussing which roles younger generations are interested in—and qualified for— is also an important aspect, Ringham said. This could include determining which family members are ready to take on an investment component of a family office or lead its philanthropic efforts, he said.
The looming great wealth transfer is calling for younger financial advisors.
Another barrier to succession cited by family offices is the age of the next generation, with 42 percent saying their heirs are too young to plan for future roles. In a bid to relate to next-generation clients, RBC is tapping into its younger talent. And they’re not the only ones doing so—Merrill Lynch Wealth Management has also said that it’s recruiting younger advisors in anticipation of an influx of younger clients.
“I’ve had a chance to watch teams that have an older advisor and younger advisor, and it’s not uncommon for the younger advisor to start working with the next generation,” Ringham observed. These types of pairings can also help ease the concerns of younger clients, who “know that their advisor will be there for the long term with them,” he added.
Such alignment is needed as the great wealth transfer looms and younger generations become increasingly involved in inheritance discussions at younger ages. As families prepare for the shift, some might begin transferring small amounts of assets to their children for investment purposes to help them understand what their responsibilities would be like as the trustee of a trust, according to Ringham. Others, meanwhile, could offer their grandchildren $500 to give to a charity of their choice as an exercise on family philanthropy. “The earlier you can involve the next generation in these discussions, the better,” he said.
