The Great Wealth Transfer, also known as the intergenerational wealth transfer, has begun and refers to the transmission of family assets from one generation to the next. It is estimated that between 2023 and 2045, $84 trillion in assets will be handed down to Millennials and members of Generation Z (Gen Z).
The phenomenon started in the mid-2010s when the Baby Boomer generation began to retire. We have now reached the height of the Great Wealth Transfer, where over the next two decades, the Millennials and Gen Z will gradually inherit private wealth. With $84 trillion at stake, it is important to learn about this generation who have different values, goals and vision to their predecessors.
Let’s explore Gen Z in a bit more detail.
Most Gen Z were gifted their first smartphone before their 12th birthday and are therefore considered “digital natives”. Understandably, their expectation and decision-making are heavily influenced by their digital experiences, which is reflected in their investment choices. In contrast to their predecessors, who appreciate the chance to visit their adviser or banker in person to chat about their investment portfolios, the digital native generation tends to prefer digitised offerings. Family Offices are traditionally slow to adopt new technology and digital solutions. However, as the tech-savvy generation takes over, it is believed that technology will become integral to the operation of Family Offices.
What does this mean for Family Offices?
The 2020 Deloitte Millennial Survey stated that Millennials and Gen Z want “leaders to show a commitment to making the world a better place for everyone and demonstrating a purpose beyond profit.” Millennials and Gen Z are known to be much more environmentally and socially conscious than their forebears. It is very clear to us that the next generation of leaders have different priorities And often lean towards environmental awareness, education, impact investing and philanthropy. As a result, sustainable investing, including net zero, has also increased in demand in recent years.
Family Office service provider Ocorian stated that 91% of Family Office professionals said charitable giving is set to increase over the next three years. Philanthropy has always been the key to engaging young family members, and a lot of families expect the next generation to participate in established family philanthropy objectives. However, the new generation has different priorities and values from their predecessors and is set to shape philanthropy in the private wealth world in the near future. To better engage the next generation and ensure a smooth transition, we advise that Family Offices and incumbents to begin working closely with the causes the next generation cares about.
Many are sceptical of Millennial and Gen Z leaders’ investment abilities simply because of their young age and associate that with a lack of experience. However, research shows that the new generation is in fact, very experienced and mature when it comes to investment. According to the CFA Institute, this generation often begins their investment journey at a young age. Reportedly, 31% of Millennials were under the age of 21 when they started investing. This is compared with only 9% of Baby Boomers and 14% of Generation X when they were the same age.
Millennials and Gen Z will be entering leadership positions with knowledge, differing views and fresh perspectives. To ensure a smooth transition between generations and the longevity of the Family Office, it is vital for Family Offices and their respective employees to embrace and reflect the values and beliefs of the next generation through their services. They must equip themselves to prepare for the change brought by the new generation of leaders. We anticipate the new generation of Family Offices to closely mirror the dynamic and proactive new generation of family members. As the new generation of leaders gradually takes over, we are expected to see different professionalisation and digitalisation in the Family Office industry as well as more philanthropic and personal ambitions.