There is considerable commentary on a multi-trillion dollar wealth transfer and what impact it will have. One area could be on economic and financial sectors. A rising generation might be less interested in traditional collectables, even hostile to them, and prefer other areas instead.

Traditional antiques, family homes and certain collectables will be hit by a multi-trillion wealth transfer around the world. Luxury goods, high-end travel, listed equities, cryptos and sustainability-linked investments stand to benefit from this trend, as it plays out over coming decades, according to Edmond de Rothschild in a white paper.

The European private banking house is trying to predict the asset allocation and business implications of this shift. According to US data alone, household wealth is worth approximately $150 trillion. Globally, the transfer is expected to make it the largest in history, with an estimated total of between $80 trillion and $125 trillion by 2045.

In geographic terms, of the at least $80 trillion expected to be transferred globally, 60 per cent will be inherited by individuals in the Americas, 25 per cent in Europe and the Middle East, and 14 per cent in the Asia-Pacific region.

Asset differences
“This record wave of wealth transfer is expected to benefit heirs who are more focused on investing in public and private markets and sustainable investing, but who are also more attached to their social status and quality of life. Female heirs are expected to receive an average of 56 per cent of these sums, with significant implications for several industries,” the bank said. 

The private banking and wealth management sectors are prime beneficiaries of this shift, the report said. Adjacent sectors including online financial advisory services, luxury goods, travel, and luxury real estate sectors, as well as legal and tax consulting and the entertainment industry, are expected to benefit from this windfall. 

On the downside, the sift will be negative for mid-range consumption, given the rise in inequality it may cause, as well as on suburban real estate and antique collections, which are likely to be sold by more urban heirs whose tastes differ from those of their elders, the report said. 

A challenge for policymakers unsettled by rising inequality is that if inheritors are taxed more heavily, affected individuals might move to more favourable tax regimes. (There are already signs, so reports say, that this is happening.)

The report even delves into how certain collections and valuables, already losing appeal because of changing attitudes and preferences, will lose out. (This also raises the point of estate planning for fine art and other areas where styles and preferences of potential inheritors are a factor. See another article on this area.)

“We can expect traditional collectables, such as stamps, classical art, spirits, etc., to decline. Physical assets that do not align with the younger generation’s preference for sustainable investing could be particularly affected: traditional furniture, hunting trophies, and animal fur coats are, in fact, taboo for many members of the younger generation, at least in Europe. 

“Furthermore, assets that require maintenance, time, or convey an outdated message (such as a colonial trophy, collections of antique tableware, or old stamps) hold less appeal for younger generations. It’s also important to keep in mind that younger generations tend to be more mobile and more urban than their elders. As a result, real estate agents in small towns and rural areas are concerned about the future of certain properties passed down through inheritance. Some heirs may indeed prefer to sell family properties located far from where they live, rather than keeping them as second homes. However, this trend varies by region, depending on the family’s attachment to the property, its condition, its heritage value, and local real estate market conditions.”

The report said that many “peripheral real estate assets and collections of antique art could be sold off in favour of modern art, watches, designer jewellery, and high-end clothing, but above all towards stocks, cryptocurrencies, private markets, and sustainable investing. The transfer of wealth from Baby Boomers to Generation Y, however, remains favourable for luxury real estate,” it said. 

Out with fur coats, in with stocks and cryptos
On the positive said, if inheritors dump certain assets bequeathed to them, they could put money into stocks and bonds. Younger generations are also less inclined to pass on wealth to future generations and prefer to take more risks and create economic opportunities. 

“Today’s young investors, who will inherit family wealth tomorrow, are likely not only to be more willing to invest in public markets, but also to allocate a portion of their assets to alternative asset classes such as private markets or cryptocurrencies,” the report said. “In addition to asset classes, investment preferences may also vary by style, with Millennials showing greater interest in sustainable investing. Heirs are also more likely to turn to liquid assets than their peers. However, a certain degree of conservatism and respect for `family heirlooms' cannot be ruled out. In the realm of luxury assets, a shift driven by social status can be observed, moving away from `traditional luxury’ (such as works of art) towards `social status luxury,’ such as watches or jewellery,” it said. 

Generational changes
The report said that younger members of the middle class, facing inflation and a decline in purchasing power, are likely to sell inherited assets to purchase a new home or renovate their current one; younger generations inheriting significant wealth are “more inclined to retain those assets, unless a major business opportunity compels them to sell these inherited assets.”

“This means that banks and asset managers must adapt: they need to offer a solid ESG portfolio, provide opportunities in private markets or cryptocurrencies, and deliver robust financial advice tailored to a younger and more female clientele,” the report continued. “Banks in countries where financial assets already make up a significant portion of the older generation’s wealth are likely to benefit less from this major wealth transfer than banks in countries where real estate plays a dominant role: indeed, the sale of real estate and the conversion of the proceeds into financial investments are expected to represent a significant shift for these wealth managers,” it said.

Wealth transfer will boost luxury goods manufacturers because of growing importance of social status among many young people, the report said. 

“Furthermore, the urbanised and globalised younger generation is more familiar with major international brands than [the] previous generation were. The success of Richemont and Tiffany in the jewellery sector reflects this trend towards social status and is expected to gain further momentum as inherited wealth is transferred to younger generations,” it said. 

Jurisdictional variety
The report said composition of wealth varies from country to country. More than 80 per cent of wealth is concentrated in financial assets in Sweden, Israel, and Taiwan, but it accounts for less than 30 per cent in Spain and India, and even less than 20 per cent in Turkey. 

“The differences in wealth composition among these countries could influence the impact of inheritance transfers, as financial assets are generally easier to liquidate to finance consumption. Conversely, real estate assets, for example, are not as quickly or easily divisible among heirs,” it said.