Generational Wealth Transfer to Hit $68 Trillion Over 25 Years: Cerulli

In 25 years, Generation X will replace baby boomers as the biggest wealth wielders.

That’s according to a Cerulli report that predicts the transfer of a total of $68 trillion in wealth over the next quarter century by nearly 45 million households.

According to the report, U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2018: Shifting Demographics of Private Wealth, boomers will account for close to 70% of those households, shifting approximately $48 trillion.

“Wealth transfer” is defined by Cerulli as “any shift of assets that occurs from one household to an heir or charitable cause either while alive or after death.” It says that the $68 trillion can be broken down into four methods of transfer: gifting to heirs inter vivos (while alive), bequeathing to heirs (at death), donating to charity inter vivos, or bequeathing to charity.

According to the report, Cerulli expects the great majority of this wealth to be transferred at death — nearly 93% — with the rest donated to charity and gifted to heirs through inter vivos giving.

“This multigenerational shift in wealth will reshape the wealth management landscape over the next quarter century and will force firms to alter their existing business models and services,” Asher Cheses, an analyst at Cerulli, said in a statement.

Cheses added, “Gen Xers stand to be the primary beneficiary of wealth transferred from baby boomers.” By the end of the 25 years, the report says, boomers will be replaced by Gen Xers as the generation with the greatest wealth.

Cheses continued, “Despite the fact that it will take some time for these households to outgrow the baby boomer generation, building genuine and longstanding relationships with this cohort of inheritors needs to be top-of-mind among wealth management executives.”

And it’s probably overdue, since the report says that while 58% of HNW practices have established relationships with clients’ spouses, less than half have limited interactions with their children (45%) and grandchildren (49%).

They should be taking advantage of it while they can, since 63% of all affluent households trust their financial firm looks out for their best interests — and HNW households are even more convinced of this, at 73%.

With this immense wealth transfer in the wings, Cerulli says that HNW practices will face both opportunity and threat, and need to build multigenerational client relationships to survive. They also must adapt to the needs and wants of the next generation of clients. Firms that manage to do both successfully should emerge at the end of the wealth transfer period with a new generation of clients and retention of a sizable share of transferred assets in the process.

— Check out Who Leaves an Inheritance, Who Doesn’t on ThinkAdvisor.