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Financial Planning > UHNW Client Services > UHNW Client Advice

Inside the Minds of Younger HNW Investors

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What You Need to Know

  • Younger and older investors have starkly different views on the best way to build wealth in the future.
  • Younger generations are quick to embrace new investment ideas and new ways of engaging with their advisors.
  • Wealth transfers and philanthropic topics present a great opportunity for intergenerational collaboration.

Analysts with Bank of America Private Bank have published a new study of the savings and investing behaviors of wealthy Americans, putting the focus on the different beliefs and expectations of different generations of U.S. investors.

According to the analysis, the U.S. is already in the early stages of a historic generational transfer of wealth — with as much as $84 trillion expected to pass from baby boomers to younger generations through 2045.

Of that massive transfer, according to Bank of America, $73 trillion will go to heirs and $12 trillion will go to philanthropic causes.

Speaking with ThinkAdvisor about the findings, Ken Shepard, head of investments and wealth strategy for BofA Private Bank, says generational differences in perspectives about money and the use and purpose of wealth will have significant implications for high-net-worth individuals and families — and for the advisory professionals serving them.

Lower Faith in Stocks, Enthusiasm About Crypto

The survey shows younger and older investors have starkly different views on the best way to build wealth in the future. Older investors, for their part, put investing in the U.S. stock market at the top of their list.

Younger investors, led by millennials, put U.S. stocks at the bottom of their list — behind international and emerging market stocks, alternative investments and owning a business.

As Shepard points out, younger investors allocate three times more of their investment portfolios to alternative strategies and half as much to stocks as older investors do. Younger investors are twice as likely to invest in private equity, hedge funds, commodities, infrastructure and tangible assets.

“One really striking finding is that young investors think the best growth opportunity lies in the digital asset space,” Shepard points out. “Nearly half report being invested in cryptocurrencies, and most say they understand the crypto market quite well.”

New Investments, New Forms of Engagement

Shepard says it makes sense to see the younger generations of investors embracing new ideas about wealth generation. He suspects the experiences of going through the Great Recession and the economic turmoil created by COVID-19 have definitely affected these people, causing a degree of skepticism about the equity markets not seen in older generations.

“I think there is something else at play here, too, and that is the pace of innovation seen during their lifetimes,” Shepard says. “Millennials and Gen Z are very quick to embrace new things, and they are equally as quick in deemphasizing older ways of doing things.”

In Shepard’s experience, in the same way younger generations are very quick to embrace new investment ideas, they are also very quick to embrace new ways of engaging with their advisors.

“The acceptance of digital interactions has become much more prevalent,” he points out. “What we also found, when we looked at areas like philanthropy and sustainable investing, is that younger generations often have very different views than their own parents and grandparents.”

Shepard says advisors can and should step up and be a kind of mediator between family generations, helping them to understand and see each others’ point of view. Greater clarity and communication, he says, are the sources of successful wealth transfers — and healthy relationships in general.

Sustainable Investing Is Becoming the Norm

According to the Bank of America study, ownership of sustainable investments has doubled since 2018 among all age groups. For investors under 42, it’s now the norm.

The data shows younger people are also more likely to perceive an impact and positive performance delivered via sustainable investments.

Specifically, among sustainable investment owners, three in four of the younger group see evidence of strong financial returns and evidence of positive impact stemming directly from a focus on sustainability. This compares to about half of asset owners who are 43 or older.

Philanthropy and Client Identity

The survey results show 82% of parents who are philanthropically engaged believe that they and their children share the same philanthropic vision and goals. However, just 41% of older generation investors think the next generation’s philanthropic efforts will be equally effective as their own.

Shepard notes that the younger generation, at the same time, is more optimistic about their ability to achieve philanthropic goals, with 87% believing their giving will be more effective than earlier generations.

When making charitable giving decisions, 76% of respondents, including 88% of women, prefer to establish their own philanthropic identity apart from their family. Also telling, Shepard says: Just half of all donors support the same causes as their parents.

Family Wealth Talk Starts Late, but Advisors Can Help

Returning to the wealth transfer question, Shepard says the analysis shows the “family wealth talk” is happening, but it too often starts late and doesn’t equate to financial preparedness.

The survey shows 68% of parents say they have talked with their children about their family’s wealth, including how much money the next generation stands to inherit.

On average, however, parents don’t initiate conversations about family wealth and the transfer of wealth until their children are at least 27 years old. Overall, roughly half of parents think their children are well prepared to handle family money or any inheritance they stand to receive.

Shepard says nearly six in 10 respondents have limited or no understanding of trusts, highlighting a key area where wealth advisors can leverage their expertise to help solve client problems.

In fact, while satisfaction with wealth advisors is high — 97% of survey respondents are satisfied, including 74% who are very satisfied with their advisor relationship — the survey shows gaps exist between the topics people want to discuss with their advisor and the conversations taking place.

The three topics high-net-worth people most want to discuss with their advisor today are tax planning (88%), estate planning (81%) and investing in an inflationary environment (80%).


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