How the great wealth transfer is rattling Wall Street
Tens of trillions of dollars are moving between generations — and younger heirs feel little loyalty to traditional advisers
Harriet Clarfelt and Joshua Franklin in New York, Josh Spero in London and Owen Walker in Singapore
© FT montage/Getty Images
Just months before he died last year aged 98, Goh Cheng Liang, one of Singapore’s richest men, made six of his grandchildren billionaires.
The Nippon Paint tycoon, who built his business empire from a single shop trading cheap goods bought from the British Army, was worth $13bn at the time of his death.
But instead of taking the traditional route when it came to his inheritance, Goh decided to skip a generation with a significant part of his estate. He gave his son control of the family business and endowed his grandchildren with his financial assets, enriching a group of thirtysomethings who include an academic in New York, a charity worker in Bali and an urban-farming entrepreneur.
“They can then do what they like — buy expensive properties, set up their own businesses or do their own investments — without putting the future of the company at risk,” says Melvyn Goh, the unrelated founder of consultancy Succession Advisory Partners.
The story of the Goh family inheritance is part of a global megatrend now under way.
More than $60tn of wealth in the US alone will pass into the hands of Gen Z and millennials before 2048, according to one estimate from Cerulli Associates.
That shift — dubbed the great wealth transfer — is already disrupting the businesses in the US and beyond dedicated to helping the ultra-wealthy preserve and grow their fortunes.
The worst may be yet to come.
While a large share of wealth is expected to pass first to spouses and older heirs, it will subsequently cascade to younger generations.
At the same time, rapid developments in AI and a flurry of initial public offerings are expected to breed even more millionaires and billionaires.
That will expand the target population of young, rich clients for those who manage money, but those same technological advances are enabling the wealthy to be more independent in managing their fortunes — threatening an industry that has relied on long-cultivated human relationships.
Cheaper platforms and DIY services that have proliferated in recent years are adding to fee pressures already faced by incumbent wealth managers, just as they are spending more on their own tech and AI capabilities to keep up.
Traditional banks and wealth managers missed out on around $1.5tn in assets under advisement between 2022 and 2025 as wealthy clients turned to upstart competitors, consultancy Capgemini said earlier this year.
As banks and wealth management businesses attempt to appeal to this new generation of beneficiaries, they are rethinking hiring, embracing cryptocurrencies and other alternative investments and expanding their “lifestyle” perks.
Manhattan seen from the Staten Island ferry. More than $60tn of wealth in the US alone will pass into the hands of Gen Z and millennials before 2048 © Charly Triballeau/AFP/Getty ImagesBut this and other moves, such as diversifying into newer asset classes and offering special access to exciting private markets trading strategies, require investment and time.
“All of that costs money, and increases complexity, and doesn’t scale as fast as if you’re just growing what you have,” says Roland Kastoun, US asset and wealth management advisory leader at PwC.
Traditional advisers may have little choice but to play catch-up, however.
“What’s at stake is the future of the industry,” says Chayce Horton of Cerulli.
“[Wealth] is going to change hands to people with fundamentally different experiences, preferences, thoughts on money than [those] who currently [have] the wealth . . . People can increasingly vote with their feet, and vote with their dollars.”
Many young heirs came of age after the global financial crisis 18 years ago.
Their experience of the economy is drastically different from that of their older relatives — characterised by, among other phenomena, the longest bull run in US stocks on record and the rise of cryptocurrencies.
If there is one investment that reveals this divergence, it is digital assets.
Almost half of millennial investors hold crypto, according to polling by French bank Natixis, compared to about a third of Generation Xers and just one in six baby boomers.
Some older people still see crypto as a rogue asset more akin to gambling than investing.
Raul Gastesi, an estate planning lawyer based in Miami, says that some clients have put restrictions on how their heirs can invest their inheritance, with two recently being explicit that funds should not be ploughed into crypto.
He disagrees with this limitation: “I think that’s a mistake.
You don’t know where crypto is going to go — you have to leave it to the judgment of the trustees.”
But the command was clear.
The reticence is reflected in the investments made by family offices — private wealth management companies for rich individuals — which are typically still dictated by the senior generations.
Melvin Deng, chief executive of Singapore-based digital asset trading company QCP, says family offices that do invest in cryptocurrencies typically have about 1-2 per cent of their total assets in them.
Even his clients, who he says tend to be early tech adopters, have at most 5-7 per cent of their wealth in digital assets.
“The level of exposure can lead to a tussle between cultures [in the family],” Deng says.
“But there is a shift in perception when it comes to these assets, from initially being seen as a driver of returns to now being viewed as adding greater diversification to the portfolio.”
Recognising that younger clients are likely to seek higher allocations to digital assets in future, the biggest private banks and wealth managers have started to act.
Morgan Stanley Wealth Management this month announced an agreement with crypto group Galaxy Digital, allowing clients to lend crypto to Galaxy and receive shares of exchange-traded products that give exposure to digital assets.
JPMorgan and crypto exchange Coinbase last summer announced a partnership allowing Chase clients to link their bank accounts to their Coinbase wallets.
It remains to be seen how substantive such partnerships between traditional managers and crypto companies truly are.
For one executive at a multi-family office, these activities among banks are “what they have to do” now.
But the executive adds: “It’s not an investment choice we’d advocate.”
More than crypto, however, younger investors want to cash in on the AI boom — and currently that means gaining access to private companies.
“[These clients] tend to be a bit more hands-on and comfortable with risk,” says Brittany Boals Moeller, Goldman Sachs’ region head of San Francisco private wealth management.
The allure of the classic stock-bond portfolio has dimmed.
Almost 90 per cent of those aged between 21 and 45 want to invest more in alternative assets such as private equity and real estate, according to Bank of America’s most recent study of wealthy Americans.
Among baby boomers and their elders, the figure is just 15 per cent.
“We see a lot of interest not only in private equity but also in doing co-investments,” where a single investor will take a slice of a deal alongside a buyout firm, says Arjun Anand of Klay, a financial services company that serves the ultra-rich and their family offices.
“Interest in investing in SpaceX has largely come from our second-generation clients.
But catching the next SpaceX early is really what they want.”
High-rise residential buildings in Aldgate, east London. Almost 90 per cent of those aged between 21 and 45 want to invest more in alternative assets such as private equity and real estate, according to Bank of America research © Mike Kemp/In Pictures/Getty ImagesBanks already offer wealthy clients early access to some of the biggest private companies in the world ahead of their IPOs.
But there are signs they want to go further.
Morgan Stanley this year acquired EquityZen, a trading platform for buying and selling shares in private companies, while stock brokerage Charles Schwab scooped up private share marketplace Forge Global for $660mn.
As direct investments become more popular, however, it becomes harder for advisers to source opportunities.
“The demand . . . across wealthy families is enormous,” says Greg Fleming, chief executive of Rockefeller Capital Management, but assessing the merits of early-stage companies can be tricky.
“We’re looking to find companies that we like a lot,” he says, where “maybe we get them into it on an exclusive basis: we’re the only wealth firm, or we’re one of a few wealth firms.”
Even banks that can provide that access face a more awkward question: whether younger clients want it from a bank at all.
One young heir tells the FT that the banks have not twigged that, no matter how far they go into some of these newer areas, the mere fact of them doing it is unappealing to his generation.
“I think once institutions start seizing on these things or start integrating with them, [things such as crypto] become less trusted, so it’s very perverse.”
He holds out some hope for them: “The thing of it being not cool because a bank does it will be less potent over time . . . After a while, people go, ‘OK, this is the new normal.’”
JPMorgan’s chief executive Jamie Dimon recently said he was “jealous, damn it” of neobank Revolut.
Dimon’s praise was aimed at one feature in particular: the speed of the 11-year-old company’s constant evolution.
Revolut and its peers offer digital services such as travel features that appeal to younger clients — services the big banks are working to develop themselves.
While many of these apps, which also include Wealthfront and Betterment, have smaller average account sizes than the very rich clients served by banks and family offices, younger investors have grown up using them.
The risk is that they prefer their convenience — and lower fees.
Banks are having to spend vast amounts to catch up.
JPMorgan has said its tech outlay will be $20bn this year, with $2.2bn earmarked for asset and wealth management.
By offering slicker tools for clients to keep track of their wealth at home, groups hope they will stay locked in the bank’s ecosystem, rather than switch to rival tech-oriented platforms.
Some also allow smaller account sizes for family members of wealthy clients, with Goldman Sachs offering set fees for next-gen accounts based on its overarching relationship with the family.
The bank has similarly let founders open accounts below their normal size thresholds, in anticipation of their businesses and wealth growing in time, while Morgan Stanley offers free accounts and no-commission trading on its self-directed E*Trade platform, introducing clients to the bank’s larger brand.
They are also laying on education and entertainment opportunities.
Goldman Sachs has a financial literacy course for clients’ children as young as 15. JPMorgan Private Bank runs “Emerging Family Leaders” events around the US.
For families worth at least $100mn, Morgan Stanley is offering a Formula 1 networking event during the October Grand Prix in Austin for 21- to 35-year-old clients.
“No matter how wealthy someone is, they still value exclusive experiences — whether that’s a suite at the US Open men’s or women’s final or another once-in-a-lifetime opportunity,” says Liz Weikes, a managing director at Wells Fargo’s private wealth business.
Views on how effective these programmes are and how much they will pay off in the long term vary.
The multi-family office executive says they are more to keep the parents happy than the children.
“But that doesn’t mean that we’re not trying to make them very useful, we want to build relationships there as well,” they add.
Some bankers predict that children will still move their money away from existing banks when they inherit.
But the engagement events have become a standard fixture in the wealth industry’s arms race.
“You don’t want to be the only bank showing no interest in the kids,” says one longtime private banker.
The industry is coming to recognise that education and entertainment are not enough to breed loyalty with the next generation of heirs.
They want advisers who look and think like them, and companies are having to shuffle their line-ups.
One wealth manager had a client’s children ask that they no longer be served by their longstanding relationship manager.
Instead, the children wanted someone more in tune with their generation.
The senior adviser was removed.
Some in the industry itself are not convinced that the efforts are worth it.
Sceptics point out that the wealthy are spending more than ever to live longer, postponing the wealth transfer, and that most of the bankers and advisers cultivating these relationships will not stay for nearly as long with their current employers.
Already a number of wealth firms have been swept up in a wave of private-equity-backed “roll-ups”.
Clients are also increasingly spreading their business around.
A global wealth survey by consultancy Capgemini found that between 2019 and 2025, the number of rich people working with only one company halved to 19 per cent, while the number using four to six doubled to 25 per cent.
“It’s a fool’s errand,” says one seasoned banker of the effort to retain the next generation.
The young heir agrees.
“I think a lot of my siblings have made a real effort to move away from our parents’ bank . . . because they just feel that was the family legacy banking partner.”
He says that his cohort “feel that they can get the best of both worlds themselves . . .
[People] aren’t relying as much on one sole oracle of guidance and information.”
0 comments:
Publicar un comentario