With Wealth Transfer Commencing, Advisors Can't Miss Out on this Demographic Opportunity

One of the marquee planning issues advisors are increasingly dealing with in recent years is the epic transfer of wealth from older generations to their heirs.

With wealth held by older generations – baby boomers and the so-called silent generation – at all-time highs and millions of Americans retiring by the day – the wealth transfer is already well underway and advisors are likely addressing it on an almost daily basis. At the end of the first quarter, Americans 70 and up controlled $35 trillion in assets. Putting that into context, it's roughly 17 Microsoft's with some change left over.

“That amounts to 27% of all U.S. wealth, up from 20% three decades ago. Their wealth is equal to 157% of U.S. gross domestic product, more than double the proportion 30 years ago, federal data show,” according to the Wall Street Journal.

I reference the Journal article for a couple of reasons. First, it's a great article. Click the link above to read in its entirety. Second, it's one of the rare wealth transfer pieces – and when I say “rare” I mean Bigfoot/UFO type of rare – that actually references Gen X.

That's Important Because...

...Excluding my bias as a member of Gen X, the fact is advisors have, pun intended, generational opportunity with clients born between 1965 and 1980 – the strict definition of Gen X. Personally, I think that definition is too strict and the range for millennials is too broad, meaning clients born in say 1983 are probably a bit more Gen X than millennial in their views.

Even when sticking with the hard and fast Gen X definition, there are 65.2 million Americans in that demographic. Indeed, that confirms fertile territory for advisors to enhance current relationships while adding new clients to the roster.

Despite that number, financial services companies frame the wealth transfer issue as a two demographic issue: Baby Boomers and millennials. This is consistently seen in advertising, marketing materials and even at the fund level. Interestingly, financial services companies aren't being taken to task for ignoring Gen X, but they should be. In marketing terms, glossing over a demographic with 65.2 million members is new Coke type of bad.

Call me biased, but the data support my criticisms. Moreover, the data show advisors why they can't afford to ignore Gen X.

“Older generations will hand down some $70 trillion between 2018 and 2042, according to research and consulting firm Cerulli Associates. Roughly $61 trillion will go to heirs—increasingly millennials and Generation Xers—with the balance going to philanthropy,” according to the Journal.

Simple Math Doesn't Lie

When considering the math surrounding the transfer wealth, it's actually rather mind boggling that the focus is so heavily on millennials while all but ignoring Gen X.

What I mean is that for advisors operating on fee-based models and those looking to expand client rolls, it'd be more prudent to focus on age ranges that are likely to inherit wealth sooner and those that are closer to retirement themselves. In both cases, the math, and try as some companies might, nothing can be done about the math, favors Gen X.

Look at it this way. Go by the oldest age of baby boomers, currently 75. Factor in the average age at which men become fathers (I'm using men here because their life expectancy is shorter) and it's clear that many baby boomers' children are members of Gen X, not millennials.

Keeping with the theme of basic math, the aforementioned hypothetical confirms it will be Gen X that are the earlier recipients of the wealth transfer, not millennials.

As noted above, another reason advisors should be encouraged by all this is that some of the older members of Gen X are getting closer to retirement. The oldest members of that demographic are now 56 years old, meaning some could be eyeing retirement in less than a decade. And folks in their early to mid 50s are, unfortunately, more likely to have one or two deceased parents than millennials.

Combine the wealth transfer math with the proximity to retirement and Gen X is a target-rich demographic for advisors. The math says so.

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