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RIA Firms will Receive The Next $68 Trillion Transfer of Wealth

For RIA Firms, the transfer of wealth from baby boomers to their children over the next two decades is a bit like climate change: The consequences may eventually be huge, but it’s easy to ignore the issue in the short-term.

The youngest boomers are now 55 years old and the oldest are 73. In 2016, there were roughly 74 million boomers, according to the U.S. Census Bureau, and more of them are now dying than being replaced by boomer-aged immigrants. With an estimated $30 trillion to $40 trillion in assets, they are the lifeblood of the RIA Firms and the financial advice industry and, over the next two decades, they are expected to pass much of their wealth on to their Gen X and millennial children.

The vast majority of those heirs will fire their parents’ financial advisors.

“It’s going to be a fluid environment with assets up for grabs in the next 20 years,” said Gauthier Vincent, lead wealth management partner at Deloitte Consulting. “It’s a big risk for many RIA Firms and a big opportunity for others.”

This Great Wealth Transfer is about to kick into a higher gear. As much as $68 trillion will change hands between various generations over the next 25 years, according to REO Capital and Cerulli Associates. This presents enormous challenges for advisors in every sector of the industry. It pits the profitability of practices today against their viability in the future.

Millennial clients currently have much less wealth than their parents and are a money-losing proposition for most financial advisors. They also have very different expectations of financial advisors in how they want services delivered to them.

“There’s a chasm between generations in how they want to deal with wealth managers,” said Vincent. “If firms are slow to embrace the digital transformation of the business, more people will change advisors.”

Most studies suggest that 80% or more of heirs will look for a new financial advisor after inheriting their parents’ wealth. While that may be an existential threat to many advisors down the road, it doesn’t change the fact that engaging those younger clients is still a money-losing proposition for most financial advisors.

“I expect we’ll see a tipping point in the industry in about five years,” said Peter Mallouk, head of RIA Creative Planning, which serves high-net-worth clients. “The industry is unprepared for this wealth transfer.”

RIA Markets
RIA Markets

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