In Part 1 of this blog we explored a growing trend toward providing an early inheritance ‘with warm hands’ in the age of the great wealth transfer including the drivers and challenges faced. Part 2 of this blog will dive into where the wealth transfers are likely to land and how the next gens (i.e. X, Y and Z) are likely to approach managing this, drawing on findings from our research for Fidelity International – Rainbows End (focusing on those looking to pass on an inheritance) and Next Generation (focusing on those receiving inheritance).
So, the next big question that comes to mind is how will this unprecedented transfer of wealth be used? Where will it go? Who will support the big decisions that need to be made?
Much of the trillions of dollars being transferred incoming years will be lost to the asset management system. Many of those intending to leave the financial legacy believe the beneficiaries are likely to use the wealth transfer to them as payment to existing debts, that it will be spent to maintain the recipient’s desired lifestyle and invested in education.
However, when we ask those receiving inheritance what they plan to do with it, we find many more planning to invest at least part of it than may have been assumed. The most common uses for an inheritance include investing it, paying off debts, buying a home, saving it as cash, and supporting family members. Gen Z are notably more likely to want to invest their inheritance or windfall than any other generation.
Top 10 plans for inheritance
Source: Next Generation Report. Fidelity International 2024
For those investing their inheritance, the most common preferences include real estate, superannuation, high interest savings accounts, Australian shares, ETFs and international shares. Crypto currencies popularity increases markedly as inheritors get younger - begging the question of how much intergenerational wealth transfer could just go up in digital smoke were some popular crypto coins to irrevocably crash.
Top 10 preferred investment assets for inheritance
Source: Next Generation Report. Fidelity International 2024
Big decisions
Many next gens have already received some form of financial support or inheritance, and many more expect significant windfalls in coming years. This requires navigating big new financial decisions and is a clear opportunity for professional support.
Most next gens express concerns about managing their inheritance. The main concerns include tax implications, managing the money responsibly, family disputes and emotional stress. Inheritance is often a catalyst for next gen investors to reconsider their financial strategies. Over half say they are likely to change their investment strategy after receiving an inheritance, and two-thirds would consider seeking financial advice or planning to help with this. Recipients can find themselves needing support to navigate the legal, financial and investment complexities of inheritance. With this comes acute interest in seeking professional financial advice, particularly when recommended by family members. Advisers and superfunds can play a pivotal role by helping clients realign their portfolios and strategies in response to their new financial reality.
Gen Z are most likely to find the prospect of seeking financial advice appealing, with 1 in 2 finding it very or extremely appealing, followed by 2 in 5 Gen Y and 3 in 10 Gen X – signalling increasing interest among younger generations.
Notably family recommendations play a critical role in encouraging younger investors to seek professional financial guidance, signalling the opportunities to extend existing advice relationships to the next generation.
The rise of direct investing
While much of the money will pay off debt and funnel into or (remain as) property, the next generation is much more inclined to be hands on investors. While some will make additional voluntary super contributions, get a tax break and let the experts deal with it, many will want to funnel parts of inheritance into direct investing assets.
This makes sense as they want to feel empowered to get ahead and align choices with personal values and self-identity. They have many more short to medium financial goals that saving in super does not facilitate.
Of course, access to information, tips and the market is also so much easier these days – for the good and the bad. Digital platforms are empowering younger investors to take a more hands-on approach to managing their portfolios. There is easy access to multitudes of information sources and advice Mobile trading apps and online brokerage accounts are commonly used by Gen Z and Gen Y, indicating a desire for greater control and real-time engagement with their investments.
Younger clients are coming to expect a more collaborative relationship with their advisers and financial service providers. This, along with increased desire for self-improvement and financial education, suggests that they are increasingly likely to want to play a greater role in the decision-making process and bring their own ideas to the table. Support will need to adopt a more consultative role, helping clients navigate the complexities of self-directed investing while still offering expert insights that enhance decision-making. This has strong implications for how advisers manage their client relationships and the needs they must meet.
Double edged sword of youthful confidence
Next generation investors often feel empowered to navigate investment opportunities with the multitude of information sources at their fingertips. This self-assuredness can mask a lack of deeper financial literacy and experience, particularly in areas like portfolio diversification.
With younger generations displaying higher risk tolerance and financial ambition, advisers will need to manage expectations around the speed of wealth accumulation – a "Get Rich Quick" mindset. With cryptocurrencies and finfluencers around every corner, there are no shortage of opportunities to be lead astray.
A strong focus on empowering financial education, highlighting the importance of disciplined, long-term investing, will be key to ensuring that their over confidence doesn’t lead to poor decision-making. The desire for quick financial wins will demand a proactive approach from advisers - helping younger clients build on their confidence while ensuring they adopt realistic, well-diversified strategies. It is crucial to strike a balance between encouraging ambition, self-improvement and cautioning against reckless risk-taking, helping younger investors build resilient financial plans.
Multi horizon financial goals
Younger generations resonate more with the idea of ‘financial independence’ than ‘retirement preparedness’. While buying a home or property is a shared ambition across generations, Gen Z is more likely to prioritise lifestyle goals like travel and financial independence over long-term objectives such as retirement savings. Gen Y balances property ownership with debt repayment, building families and emergency funds, whereas Gen X are increasingly focused on retirement savings.
These generational differences suggest advisers offer more tailored advice and develop strategies that align with each generation's unique life stage, beyond just retirement planning. Advisers who understand and adapt to these generational differences will be better positioned to build long-term relationships with clients.
Asset preferences are shifting
Gen X, beyond property, tend to favour traditional assets like Australian shares and superannuation, while younger generations — Gen Y and Gen Z are more inclined to explore cryptocurrencies and other emerging investment vehicles. Beyond life stage influence on risk tolerance, this trend appears to signify a shift in risk appetite and a more open-minded approach to newer asset classes among younger investors. Financial advisers will need to consider tailoring their strategies to meet the evolving asset preferences of these younger clients, balancing traditional investments with more innovative options.
Younger generations are also placing significant importance on aligning their investments with their personal values, particularly sustainability and ethical considerations. Ethical investing is becoming a prominent theme with younger generations increasingly focused on aligning their financial decisions with their values.
These preferences translate to required advisers’ capabilities, as close to 4 in 5 Gen Z and 3 in 4 Gen Y think it’s important for advisers to be knowledgeable in the ESG space, compared to 2 in 3 Gen X. Advisers who lack knowledge in this space risk becoming less relevant to many next gen clientele.
Financial advisers should also be prepared to address both the financial and emotional aspects of managing inheritance, helping clients make responsible choices while maintaining family harmony. Family governance structures are increasingly important for ensuring smooth wealth transfers.
Closing thoughts
The impending multi-trillion-dollar wealth transfer presents both challenges and opportunities for next-generation investors. While much of this wealth will not directly flow into asset management, younger generations are demonstrating a greater inclination to invest their inheritance directly and their asset preferences are shifting. This highlights the need for advisers to enhance their knowledge of emerging investment vehicles and ethical investing principles to remain relevant to next-gen clientele.
Many next-gen investors express concerns about managing their inheritance, and there is a growing demand for professional financial advice, particularly when recommended by family members and trusted sources. Financial advisers have a crucial role to play in guiding beneficiaries through these complexities, helping them realign portfolios, balance risk, and make informed investment decisions.
The rise of direct investing and digital trading platforms underscores a shift toward a more hands-on approach, where younger investors seek both empowerment and collaboration in financial decision-making. However, despite their confidence, many younger investors lack deep financial literacy and are vulnerable to speculative investments and misinformation from social media and "finfluencers." Advisers and superannuation providers must play an educational role, striking a balance between fostering ambition and instilling disciplined, long-term investment habits.
Generational financial goals are diverse. While property ownership remains a priority, Gen Z and Gen Y are placing greater emphasis on financial independence, lifestyle goals, and flexibility rather than just traditional retirement planning. Providers who tailor their strategies to these evolving priorities will be better positioned to build lasting client relationships.
The next generations a rewriting the rules of engagement. The great wealth transfer represents a pivotal moment for the financial services industry. Those who adapt to the next generation’s investment preferences, advisory needs, and financial behaviours will be well-equipped to support this new wave of investors in navigating their financial futures.
In our future blogs in this series we will be deep diving into the support required and service expectations of both inheritance givers and receivers. We will also explore how to win the fight for future market and how to help overcome the prevalent ‘nest egg mindset’ among those approaching and in retirement.
References
Fidelity International - Rainbows End
Fidelity International - Next Gen
Author
Tai Rotem is a consulting partner at MYMAVINS with several decades experience in financial consumer, public health, social and behavioural change research.
Reach out to him at Tai@mymavins.com.au
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