Getting ready for the great wealth transfer

By Young Pham and Robin Borelli

It’s the kind of number that tends to get people’s attention: $124 trillion. And because it represents the estimated amount set to be passed down from one generation to the next by the year 2048 in the so-called great wealth transfer, banks are among those watching closely.

Why? Because a lot of that $124 trillion is sitting in their wealth management practices. At least it is for now. When that money starts trickling down to the next generation, however, there is no guarantee that those heirs will stick with their parents’ banking partner.

That’s why banks benefit when they prepare now to ensure that when that $124 trillion starts moving, it’s not moving out their doors. Here are some key issues consider as they prepare for this historic shift.

A generational shift in assets and attitudes

Money being passed down from one generation to the next is nothing new. But this coming shift is different for several reasons.

Start with the sheer amount of wealth set to be transferred. The baby boomers have amassed quite a war chest of inheritable assets. In many cases, they have specifically invested and held that money with the intention of passing it on after they are gone.

Contrast that with ensuing generations, who have likewise continued to build wealth, but often with a greater focus on spending and sharing it while they’re still alive. That’s a big philosophical shift, and the result is a lot of money being transferred out of wealth management institutions and into the pockets of inheritors.

Meanwhile, some of the tactics that retirement planning and wealth management firms have utilized to secure those multigenerational clients have note quite worked out, such as:

• Digital lockboxes that gathered a variety of financial documents and information in one place. Customers did not necessarily love the idea of keeping all of that sensitive information with one provider. And the technology itself was static and cumbersome compared to more convenient options such as Google Drive or other storage platforms.
• Bundling products such as 529 plans and custodial accounts with the hope that children would stay with the firm once they came of age. In practice, many heirs simply moved those funds once they had the power to do so.

In both cases, these solutions did not meet the core needs of younger generations who sought modern, self-service digital tools. As a result, they did not help firms build genuine relationships with the next generation early on.

For banks, the challenge is even more formidable. Already facing challenges with younger customers, the prospect of inherited assets going out the door is just one more very real – and very serious – consideration.

An opportunity for banks to stay in the game

A good first step for banks to confront this challenge is to start focusing very intentionally on intergenerational wealth management.

In other words, the settling of the estate should not be the first interaction the bank has with the eventual heirs. By making an effort to involve and engage clients long before that time, the bank can better understand their goals and build that relationship. This effort can also include working with heirs on important matters such as managing and distributing funds dedicated to important considerations such as:

• Ongoing elder care
• Medical expenses
• General day-to-day bills

By proactively bringing heirs in to establish these access points and showcase its more holistic offerings, a bank can demonstrate another facet of its wealth management capabilities. Establishing these kinds of connections early can ease challenges for heirs when the time arrives to transfer that wealth.

Technology can help banks make their case

A demonstrated commitment to technology can be a big part of showing the viability of banks as an ongoing wealth management partner for younger generations.

Adult children looking to get involved with paying their parents’ healthcare and other expenses might benefit from an interactive dashboard or calculator that shows assets available and how they can be moved around. Maybe they can also see i that are not quite as liquid, such as a home with a mortgage or a car with an outstanding payment balance.

There are also plenty of ways that a bank can use AI to make itself a more active partner in supporting a connected family experience, such as:

• Providing AI-based scenario modeling for elder care to help outline the costs associated with staying at home v. entering a retirement community
• Highlighting gifting strategies to reduce inheritance tax obligations
• Offering an AI-powered chatbot that draws on the bank’s extensive education library to quickly answer questions about financial terms and scenarios, taxes, and more

By giving them ways to see and interact with the broader financial picture and connect those dots, the bank can help bridge that relationship with the heirs by making things a little more convenient and straightforward for them. In the process, adult children and their parents will have the opportunity to work through these issues together – with the bank as their trusted guide.

All of this, of course, ties back to offering a variety of digital services and showing heirs how easy it is to do things including connect accounts, create secondary accounts and move money around. It’s about demonstrating how digitization changes the customer experience, and it’s something that banks are going to have to lean into if they want to hold onto that transferred wealth.

The great wealth transfer is already here

Younger generations clearly favor technology-driven, mobile-first access to their money and financial information. For instance, nearly three-quarters of millennial and Generation Z customers bank on their phones, compared to just 38 percent of boomers. And that’s just one example of the digital divide between generations.

The good news is that most banks already have the digital capabilities to create the types of customer experiences that will give them a fighting chance amid the great wealth transfer. But just as they might pursue a small business customer or a mortgage customer, the next challenge is to make intergenerational wealth management a strategic priority.

That means focusing more intently on the customer experience. It means understanding how to use technology to create tiers of service that will appeal to the different needs of boomers and their heirs. It means continuing to do the underlying things banks have always done, but with an eye toward building deeper relationships.

Young Pham is chief strategy officer at CI&T, a global digital specialist. Robin Borelli is VP for digital services at CI&T.