Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 560

Where Baby Boomer wealth will end up

Within five years, all Baby Boomers will be eligible for retirement and the Boomer ‘bubble’ will have all but deflated out of the workforce by 2028. This demographic shift will have profound consequences for the financial industry and advisers.

A Productivity Commission paper, released in 2021, estimated that the transfer of inherited assets at about A$120 billion per year, and this figure is expected to grow to almost A$500 billion per year over the next 25 years.

The same research also found that the average age of inheritors is 50 years old, close to the mid-point of the age bracket corresponding with Gen X, which makes them an important part of the answer to the question about who will inherit the bulk of the baby boomer wealth.

Likely beneficiaries

Research suggests where money may be directed. The Future of Legacy Giving: Boomers and Beyond – Australia (November 2023), found that Baby Boomers and Gen X felt strongly that it was important to help others in need as well as your own family (55% and 61% respectively) and had a higher expectation that their family will need financial support from them (19% and 38% respectively).

Of arguably greater consequence, there also appears to be evidence that females will be the primary beneficiaries of financial flows from the transfer.

The report cites research commissioned by Schroders and McKinsey (UK and US respectively) suggests females will be the primary beneficiaries of the wealth transfer, inheriting 60% to 70% of the wealth transferred, this decade. As women statistically live longer than men on average, it’s not inconceivable they will have full control of their family wealth at some point.

All in all, it seems females are set to play a significant role in how the intergenerational wealth transfer will play out and this will likely have a profound impact on the adviser-client relationship and the advice industry overall. Whether the industry has adapted or is ready to is a different question.

Implications for financial advisers

According to The Value Gap, a report from Effortless Engagement, over 70% of clients would like their adviser to advise their children, though it may not be a fait accompli that children will use their parents’ preferred adviser. Overseas research suggests that many inheritors change their advisers.

Accordingly, working with clients to extend conversations about transfers to beneficiaries and including them in conversations, should be a key priority for the industry.

For advisers, Australian Ethical found in its 2023 Opportunity Next report, conducted with CoreData, that an overwhelming majority (77%) of advisers who engaged children in wealth transfer conversation, saw an increase in client satisfaction.

Education directly addresses a general need across generations but particularly for younger beneficiaries. Advisers are increasingly leveraging digital channels to help beneficiaries better understand the transfer and investment process and how decisions will impact them.

Advisers can also take advantage of new client portal and reporting technologies to be better informed as to the composition and performance of their portfolios and help strengthen communication and trust between transfer stakeholders.

Technology key

While the intergenerational transfer of wealth presents a substantial opportunity for advisers to engage clients and beneficiaries to establish resilient, long-term revenue streams, success is predicated heavily on their ability to add value as well as serve them profitably.

Naturally, technology is part of the answer. Modern and fully-featured trading platforms provide advisers access to the wide range of markets and asset classes required to build bespoke client portfolios in precise alignment with their objectives and risk profiles.

The net effect and arguably a key role of technology through the wealth transfer is to help address the challenges of communication and trust as root causes of transfer, ensuring there is a common and mutually agreed fact-base for stakeholders in order to deliver transfer plans their best chance of success.

At the same time, technology can help deliver significant operational efficiencies to a practice, allowing them to navigate the challenges and take advantage of the opportunities from the intergenerational wealth transfer.

Adapting to change

Investors and the wealth management industry has always adapted quickly to new technologies to improve products and services.

Our industry has, and will continue to be able to, deal with change. It is just happening faster and with higher impact than many realise.

With the older generations about to leave the system, the younger generations face different challenges than those that came before them, and the transition to innovation in the digital world is continuing apace.

The wealth management industry and equity capital markets are proven at adapting to help the economy find new ways to create capital and increase wealth. It is essential that industry participants become more active in understanding and discussing the changes that are now taking place and engage across the value chain to plan and execute change.

Industry participants need to accelerate their preparations for intergenerational transfer, as the Baby Boomer boom is over.

The full research paper on this topic can be found at: https://www.ausiex.com.au/media/202227/2024-ausiex-intergenerational-wealth-transfer-rgb.pdf.

 

Te Okeroa is Head of Sales, Trading and Customer Relationships at AUSIEX. This information contains general information only and has been prepared without taking into account your objectives, financial situation or needs.

 

RELATED ARTICLES

Rethinking super tax concessions for the future

Australia isn't ageing as quickly as the Government says

Why Australia’s roaring population growth won’t last

banner

Most viewed in recent weeks

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Latest Updates

Economy

Is 'The Great Australian Dream' a sham?

Peter Dutton has made housing a key issue for the next election, pledging to “restore the Australian dream” of home ownership. It got me thinking about what this dream represents, how it originated, and whether it’s still relevant today.

Superannuation

Clime time: Taxing unrealised capital gains – is there a better idea?

The efficacy and fairness of establishing an unrealised gains tax regime will hopefully be hotly debated at the next election. We need better ideas on how to use the strategic and unique benefits of our massive super funds.

Retirement

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Investment strategies

What poker can teach us about investing

So-called ‘resulting’ is what poker players call the tendency to judge a decision based on its outcome rather than its quality. It's something that happens a lot in investing, though should be avoided at all costs.

Latest from Morningstar

Should you buy and hold an Artificial Intelligence portfolio?

For those with the patience to own an investment as volatile as the AI sector, buying and holding a stock basket might make sense. However, based on internet stocks’ history, you need not rush to do so.

Strategy

The bull market in commodities may be just starting

The world is entering a higher cost environment which will hit the profits of companies in many sectors. A key beneficiary will be commodities, where supply shortages are meeting increasing demand from AI and green energy.

Shares

The challenges facing electric vehicles

Slowing demand and profit warnings from the EV manufacturers has seen analysts revise down their EV penetration forecasts. What's behind the slowdown, and are the issues a blip or something more serious?

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.