The Great Wealth Transfer Will Radically Change Financial Services

Mike Sha is the Co-founder and CEO of SigFig.

Much has been written about the monumental change on the horizon known in financial services as “the Great Wealth Transfer.” Over the next two decades, parents and grandparents are expected to pass down trillions of dollars (approximately $84 trillion, by one estimate) to charities and younger generations—particularly, Millennials and Gen Xers. This will drastically shake up the financial services industry as players jockey for position with beneficiaries.

It is important to acknowledge that the Great Wealth Transfer is not a static event, but one that will be impacted by big swings in the economy, technology and culture. The ability for financial advisors and wealth managers to compete will depend on how prepared they are to address inevitable changes.

From my perspective, here are three trends to keep in mind as the Great Wealth Transfer plays out:

  1. Technology will be integral to helping families manage estates effectively.
  2. Large banks have unrivaled budgets and are investing heavily in digital transformation.
  3. Fintech brands are rapidly gaining market share, particularly with younger generations.

How Wealth Advisors Can Prepare

While few people are excited about their family’s estate planning, wealth managers need to be ready for the inevitable inbound requests from clients and prospects. But they shouldn’t anticipate that they will keep or win all the newfound business.

Heirs and beneficiaries of the Great Wealth Transfer won’t necessarily trust their new-found windfalls with their parents’ financial advisors. Certain incumbents may have been kept on by older generations because of inertia or because switching financial providers has historically been a hassle. But they should realize that today’s seamless digital interfaces and automated processes have made it easier for investors to make a change.

In fact, according to an EY survey, younger generations are already showing a proclivity toward tech-focused brands versus traditional institutions.

Technology Will Be A Catalyst For Change

Settling an estate is often a lengthy, complicated process—and the larger the estate, the more complex it will be. Siblings may have dual responsibilities managing their parents’ estate. For example, one may have durable power of attorney managing day-to-day expenses whereas the other might serve as an investment trustee.

While seeing to their respective duties, both could receive different answers to the same questions, opening the door to miscommunication, missteps and costly delays. The firms that are able to guide younger generations through this financially challenging time and establish enduring relationships will be well positioned for the foreseeable future.

To this end, there will be strong demand for collaborative, easy-to-use technology such as virtual conferencing and chat functions so that all parties are on the same page. Equally important will be technology’s ability to recalibrate, rebalance and mitigate tax exposure—automatically.

Big Banks Still Have Many Distinct Advantages

A cluster of titans has dominated the U.S. financial system: JPMorgan, Bank of America, Wells Fargo and Citibank, to name a few. Together, these banks account for 38% of total domestic assets, or $7.5 trillion.

Banks have a firm foothold and may have a clear value proposition to those soon-to-be wealthier households: They already house their parents’ or grandparents’ money; they have long issued lines of credit; and they have financed major purchases such as homes and auto for as long as many of us can remember. But digitally native generations need to see that the banks are keeping pace with their expectations.

Fortunately, great size begets great budgets—allowing upgrades to legacy infrastructure. Given the current economic climate, many financial institutions have grown increasingly skeptical of spending. However, optimizing front-end and back-end tech remains a priority to ensure the most seamless customer experience.

According to a Bank Director survey of upper management at certain U.S. banks, 81% of respondents stated their firms increased their technology budgets in 2022, with a median increase of 11%. Moreover, roughly a third of respondents believed their bank needed to allocate more money toward technology. These figures shouldn’t be too much of a surprise considering 45% of participants selected “outdated tech” as a chief concern.

Technology has cemented its place in the financial services industry, and it will remain a key differentiator during this upcoming period of change.

A Winning Combination: Banks Plus Fintech

Keep in mind that younger generations tend to trust fintech brands over traditional banks, despite their household names. The EY report shared findings from a survey of more than 5,000 consumers showing that 51% of Gen Z and 49% of Millennial respondents indicated their most-trusted financial brand was a fintech.

Banks or traditional wealth management firms and fintechs actually complement each other well. Fintechs have agility, valuable technological capabilities, unique talent and invaluable brand positioning in the eyes of younger generations—but pale in comparison in terms of customers and scale.

By partnering with fintech providers, banks can sidestep legacy infrastructure hurdles and round out their services, which can help them secure the business of future generations. These alliances are not only common practice, they’re also viewed favorably by consumers. Per EY’s survey, roughly 3 in 4 people ages 18-44 value the benefit of bank-fintech partnerships.

The Great Wealth Transfer will shape the financial services industry for decades to come. Banks, financial advisors, wealth managers and fintech companies need to prepare, and combining their core competencies can be a winning strategy.


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