Forget the tired adage of the 'changing of the guard.' Wealth management is not just about changing the guard but also about rewriting the rulebook. The millennial generation, poised to inherit an estimated US$72 trillion in assets as part of the colossal US$84 trillion "Great Wealth Transfer" projected by 2045 [1], is not simply stepping into their predecessors' shoes. They are bringing a whole new wardrobe.
This piece delves into the three profound shifts shaping the wealth management market and explores how savvy advisors can navigate this brave new world in 2025 and beyond. In this world where purpose and profit intertwine, social impact and investment returns are no longer mutually exclusive. Demanding fresh perspectives and innovative strategies, wealth managers must evolve or risk becoming relics.
Move over, baby boomers; the millennials are here, and they are not playing by your rules: The Great Wealth Transfer.
In 1989, total family wealth adjusted for inflation in the US was US$38 trillion; by 2022, it had tripled to US$140 trillion. Out of the projected US$84 trillion that older Americans will pass on to the millennials (born after 1980) and their Gen X heirs (born after 1965), US$16 trillion will be transferred within the next decade [2]. This tectonic shift headlines as the “Great Wealth Transfer” in most narratives.
Fortunes forged and fortunes found: decoding millennial money motivations
The millennial generation is not a monolith. It comprises two distinct cohorts: inheritors and self-made millionaires. Inheritors, beneficiaries of the "Great Wealth Transfer," may lean towards capital preservation and long-term stability, acutely aware of the fragility of wealth and the responsibility that comes with inheritance. On the other hand, self-made millionaires are often driven by a growth mindset and a willingness to embrace calculated risk, their fortunes forged in the fires of entrepreneurship and innovation, something that a recent Merrill Lynch study also pointed to [3] - 60% of inheritors prioritise wealth preservation. In comparison, 75% of self-made millionaires seek aggressive growth. This divergence in investment philosophy is the nuance that wealth managers must bring to their tailored strategies.
Deciding which cohort is more prominent – the inheritor millionaires or self-made ones - comes with a fascinating upshot.
After nine years of surveying global billionaires, Swiss Bank UBS reported in 2023 that the new members of the global superrich gained more from their assets through inheritance—US$141 billion amassed by 84 self-made billionaires compared to the US$151 billion that was passed on to 53 heirs [4].
What would a quick comparison of these two cohorts reveal?
For inheritors, the focus may be on responsible stewardship and legacy planning. This could involve impact investing, philanthropic advisory, and multi-generational wealth transfer planning. For self-made millionaires, the emphasis may be on growth and wealth creation. This could include venture capital investments, tax optimisation strategies, and concentrated equity positions.
Ethical equity's exponential expansion: the ESG ascendance
Moving on to the part where profit and purpose intersect, let us discuss ESG Investing. Environmental, Social, and Governance (ESG) investing is no longer a fringe movement; it is the new normal, driven by a growing awareness of the interconnectedness of financial returns and societal impact. Millennials are at the forefront of this trend, with 95% expressing interest in sustainable investing and 84% already incorporating ESG factors into their investment decisions [5].
But why are ESG investments gaining in popularity?
This generational awakening is rooted in a deep-seated belief that financial returns should not come at the expense of social and environmental well-being. Millennials view ESG investing not merely as a trend but as a moral and financial imperative. The proof is in the numbers. Consider how ESG-specific mutual funds and ETFs reached a record US$480 billion in assets under management in 2023 [6].
For wealth managers, the message is clear. More than a fad, ESG investments are a strategic imperative to attract and retain millennial clients and generate superior risk-adjusted returns. Unsurprisingly, Bloomberg Media’s Sustainable Future Study reports that the ESG market, which will peak at US$50 trillion in 2025, will be one-third of the global AUM of US$140 trillion [7].
Purposeful prosperity: philanthropy's place in portfolio planning
In the wealth management universe, after the ‘great wealth transfer’ and ESG investing, the third mainstream shift is impact investing. For the next generation of wealth holders, legacy is not just about amassing and transferring financial assets. It is about leaving an indelible mark on the world, a legacy that extends beyond personal wealth and encompasses social impact and philanthropic endeavors.
Impact investing once considered a niche strategy, is today fueled by millennials’ and GenZers' desire to align their investments with their values. The GIIN (Global Impact Investing Network) estimates the market size at over a Trillion (US$1.164 trillion) [8], with a projected compound annual growth rate of 17% through 2025.
This trend is reflected in the growing interest in environmental impact investing, the rise of specialised impact funds in Europe, and a sharper focus on sustainability by general partners, particularly in the energy transition space. Wealth managers who can navigate the complexities of impact investing and offer guidance on philanthropic strategies will be in demand by this growing client segment.
The road ahead in 2024 and beyond
The next generations are ushering in a new era of wealth management, defined by purpose, impact, and a commitment to a sustainable future. Proactive portfolio managers who embrace this paradigm shift will thrive in the years ahead. The key lies in understanding millennial clients' unique needs and preferences, integrating ESG factors into investment strategies, and facilitating impactful philanthropic endeavors.
Ultimately, the future of wealth management is not just about managing money; it is about managing meaning. Those who grasp this profound truth will lead the industry into a new era of prosperity and purpose.
