The Great Wealth Transfer is poised to begin, with the baby boomers – who own about half the country’s wealth – passing on US$84 trillion through 2045. Experts project that younger generations such as Gen X and millennials will inherit US$72 trillion of that total, while charities receive the rest.
As of now, women control only about one-third of all financial assets in the U.S., but that is about to change. As part of the great wealth transfer, women are expected to inherit much of the $68 trillion in wealth that baby boomers are passing down, according to research by McKinsey.
Whether husbands are leaving money to their wives, or couples are passing a nest egg down to their children, women stand to benefit disproportionately, the research showed.
In Australia alone, women will be the largest beneficiaries of AU$3.5 trillion intergenerational wealth transfer. The transfer isn’t something that’s 20 years away either. Much of it will happen this decade. There hasn’t been enough discussion about how this could transform markets as well as the wealth management and financial advice industries.
The future is female
There’s been a lot of overseas research into the issue of how women will soon inherit much of the largest wealth transfer in history.
Several years ago, McKinsey reported how women control about a third of the US$35 trillion in US household assets, and that could increase by another third by 2030. It says the biggest driver of the shift is demographics. About 70% of investable assets are controlled by Baby Boomers in the US and two-thirds of those assets are held by joint households.
As men pass, many will cede control of these assets to their wives, who tend to be both younger and longer lived. In fact, women outlive men in the US by an average of five years.
The report stated that by the end of the decade, women are expected to control the majority of the US$35 trillion in household assets, and that it’s a potential wealth transfer of such magnitude that it approaches the annual GDP of the US.
Schroders has published similar findings in the UK. However, the wealth transfer would appear to be more imminent there, as it is estimated that women will control 60% of Britain’s wealth by next year!
It isn’t just demographics, though. The research also found that control of the family finances at the point of wealth transfer is most likely to be managed by the oldest daughter in the family.
Women won’t just be the beneficiaries of the wealth transfer. They’ll also claim billions in existing wealth via divorce and separation. There are more than 50,000 divorces in Australia each year, with couples aged 50 and over being one of the fastest growing cohorts. The children may not get as much as they expect.
While women may inherit more, children may get less than they expect. Most retirees believe their children face similar or harder financial challenges than they did growing up, amid rising housing unaffordability and rents. Though they’re keen to support their children, 70% of them are reluctant to compromise their lifestyle to provide financial assistance.
Also, four out of five of retirees aren’t prepared to downsize to release funds to their children, according to the report. However, about half of them will consider passing home equity value to their children if they can stay in the family home.
Women will manage their money differently to men
How will women manage all their money? Here are the four key attributes:
- Greater demand for advice. Female financial decision makers are more likely to have an adviser than men. And they’ll be more willing to pay a premium for in-person financial advice.
- Lower financial self-confidence. McKinsey’s survey found many women report lower confidence in their own financial decision making and investment acumen. Only 25% are comfortable making investment and savings-related decisions on their own – 15% lower than their male counterparts.
- Less risk tolerance. Women are less likely to take big investment risks for the potential of high returns, says McKinsey. And they are much more likely to manage their money through passive instead of active management strategies.
- Greater focus on real-life goals. Women are less concerned with outperforming the stock market and more worried about having enough savings for retirement.
Most of the women are more comfortable investing their money in residential property, equities and cash. They’re less enamoured with bonds and alternative assets.
It certainly appears that women are investing in mostly what they know well versus what they don’t. Whether that changes with inheriting greater sums of money remains to be seen. Switching financial advisers may be on the cards.
While women wanting greater advice would seem positive for the financial advice industry, it doesn’t tell the whole story.
The biggest shock comes from Schroders UK research which says that 70% of Baby Boomer widows will leave their partner’s adviser within a year of their death. What it does highlight is that women often don’t have close relationships with their partner’s advisers. The overseas research also emphasises that women want a different type of advice to their partners. They prefer hyper-personalised, outcome-based financial advice that meets their real-goals.
Implications
The implications for funds managers, super funds, financial advisers and wealth managers are obvious – they had better get to know their female clients (or partners of their clients as it may be), and quickly. Because the needs of women are likely to soon reshape the entire financial industry.
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