The author of this article argues that the "Great Wealth Transfer" is not just a movement of assets from one generation to the next; it is a transformation of how these assets are managed and grown.

The following article is from Ken Gamskjaer, who is CEO and co-founder at Aleta, a “next-generation wealth platform” for family offices, wealth managers, and advisors. He is based in Copenhagen, Denmark. 

The editors of this news service are pleased to share these views; the usual editorial disclaimers apply. Jump into the conversation! Email tom.burroughes@wealthbriefing.com

As the largest wealth transfer in history unfolds, with 30 per cent (!) of global wealth poised to change hands in the coming decade, the stakes for wealth managers, family offices, and advisors have never been higher.

This transfer is reshaping the landscape of wealth management, driven by the distinctive priorities and expectations of the next generation of inheritors. In this article, I explore three critical trends linked to this shift: digitalisation, sustainability, and the evolving role of trusted advisors.

A digital ultimatum for modern wealth management 
The impending wealth transfer traces its roots back to the post-World War II era, a time of immense growth and wealth creation. As this wealth is due to shift to the next generation, wealth managers find themselves at a critical juncture.

Some 90 per cent of heirs switch wealth managers after inheriting. There are many reasons, but a significant cause is dissatisfaction with digital maturity.

The incoming generation isn't just passively using technology; they’re fully integrated with digital platforms that offer personalised, immediate, and seamless experiences.

They don’t just want online portfolio access; they want the wealth management equivalent of a Spotify playlist: personalised, accessible anytime, anywhere and, dare I say, capable of predicting their next favourite investment trend.

But there’s a digital divide between wealth managers and the next generation of wealth clients, and it’s not just a gap; it's a chasm. And for the traditional wealth manager, average age 57, it can feel wider than the Grand Canyon.

Own development based on Capgemini's World Wealth Report

The overall digital maturity of their wealth manager is number one pet peeve among current HNW individuals along with the wealth manager’s digital interface for analysing portfolio performance. 

Imagine what the numbers would look like if they represented the next generation.

The message is crystal clear: adapt to the digital expectations of the next generation or risk being left on "read.”

However, for those willing to embrace change, to continuously strengthen relationships with next-gen clients, and to choose the right technological partners, the rewards are immense.

By teaming up with tech partners that prioritise these next-gen expectations, wealth managers will be making a strategic move towards securing a firm position in the future of wealth management, where digital fluency and innovation are at the forefront.

A launch pad for sustainable investment
When I meet “next gens,” one of the things they’re most preoccupied with is identity. Their predecessors largely built their identity on their business. But the next generation is inheriting a fortune they didn’t create themselves, and now they have to figure out what they want to build their own identity on.

What’s common for many of them is that they want to create a long-lasting legacy that’s about more than profit.

Because they’re not just inheriting wealth; they're also inheriting a responsibility towards the planet and are keen to ensure that their investments reflect their ethical stances. They are diverting from traditional paths and looking towards investments that promise not only financial returns but also contribute positively to environmental and social outcomes.

In North America, Millennial HNW individuals show a marked preference for ESG investing compared with individuals over 40, highlighting a generational shift in investment paradigms.

Own development based on Capgemini's World Wealth Report

In my opinion, it’s not one or the other. I believe that profit and purpose will go hand in hand in the future because companies have to adjust to the reality we live in to thrive in the long term. In fact, studies indicate that this is already reality in many cases.

In a meta-study, NYU Stern Center for Sustainable Business and Rockefeller Asset Management analysed over 1,000 studies. Among the studies focusing on the relationship between sustainability and performance, 59 per cent indicate that ESG investments yield similar or better results than conventional investment approaches.


Source: Data Sustainability Generate Better Financial Performance? Review, Meta-Analysis, and Propositions, 2021

However, integrating sustainability into wealth management is not without its challenges. Approximately 40 per cent of wealth managers report that obtaining accurate ESG impact data is a complex task.

Admittedly, it’s not easy to navigate the ESG data jungle, and it is often grey-on-grey, but that doesn’t mean we shouldn’t take on the challenge.

But it’s not only about reporting. Wealth managers must deepen their understanding of sustainable investment opportunities. They must become as fluent in discussing carbon footprints and social equity as they are in discussing bonds and equities.

The way I see it, one of the ways to make that happen is to ensure that sustainability becomes an integral part of financial education. People in the financial world need to learn from the very beginning that risk and return are not the only important parameters to look at.

Rise of the trusted advisor and holistic advisory
Despite the rise of technology, the importance of the human element remains paramount.

This becomes clear when looking at the increasing demand for trusted advisors which is especially driven by increasing levels of fragmentation and standardisation in the world of wealth management.

Many HNW individuals experience an increasing degree of standardisation in private banking. They feel lost in the crowd of clients, receiving cookie-cutter solutions that fail to address their unique needs and aspirations.

As a response, they’re moving away from private banking.

At the same time, the wealth universe of HNW individuals today is becoming more and more fragmented and in more than one sense. First of all, investments are spread across various asset classes, both liquid and illiquid, and distributed globally. On top of that, they’re dispersed between multiple wealth managers, each specialising in different segments of the financial market.

It’s becoming more and more difficult and time-consuming for HNW individuals to stay on top of this fragmented wealth universe.

As a result of these developments, HNW individuals are looking for trusted advisors who can act as a single point of entry to the entire wealth ecosystem and provide them with highly personalised and holistic wealth management solutions.

And they expect them to look beyond classic asset classes and assume a broader and more holistic look on wealth – a perspective they expect to see reflected in their wealth management platforms. Advisors are becoming partners in building a legacy that aligns with the personal and social values of their clients.

Conclusion
The Great Wealth Transfer is not just a movement of assets from one generation to the next; it is a transformation in how these assets are managed and grown. For wealth managers, this era presents an opportunity to redefine their roles and services to align with a digitally savvy, ethically conscious, and highly personalised approach to wealth management.

By embracing digital innovation, prioritising sustainability, and reinforcing the role of trusted advisors, wealth managers can meet the high expectations of the next generation. Successfully navigating this transition will require a blend of innovation, adaptability, and a deep commitment to client relationships. In doing so, wealth managers can ensure that their services are not only preserved but are propelled into a future where they are more relevant and responsive than ever.

Sources
Atz, U. et al. (2022): Does Sustainability Generate Better Financial Performance? Review, Meta-analysis, and Propositions.
Campden Wealth: The North America Family Office Report. 
Capgemini: World Wealth Report.
Deloitte: 10 Disruptive trends in wealth management.
UBS: Global Family Office Report.
&Simple: Simple Software Technology Review.
&Simple: Simple Looking Forward