Family Offices & 401(k)s: The Future of Wealth in a $84 Trillion Transfer

Housing prices plummeting. 

The stock market fluctuations.. 

Bond prices are dropping off so sharply that they are creating a buying opportunity. 

These are just some of the ways that people are losing money right now.

But for some, unprecedented wealth may be just around the corner.

The Great Wealth Transfer

Called the “Great Wealth Transfer,” experts posit that between now and 2045, a “monumental shift” in capital assets will occur as the last of the “Silent Generation” (born from 1928 to 1945) and baby boomers (born between 1946 and 1964) retire and pass down their wealth to their children and other heirs. According to experts, trillions of dollars in cash, investments, real estate, 401ks, and other assets are expected to be transferred from one generation to the next. 

Not only is this exchange historically unprecedented and of monumental proportions, but its impact on both our economy and the heirs who receive it will be far-reaching and epic.

So, how much intergenerational wealth will change hands? 

Estimates range from $84 trillion USD to $90 trillion USD, to nearly $124 trillion USD by 2048. 

Regardless of the exact number, however, the upcoming transfer of wealth represents a “staggering movement of capital that will reshape wealth management for decades.” This exchange of wealth is of historic proportions. There has never been a larger generational transfer of wealth in U.S. history.

Not only is the amount of money expected to change hands unparalleled, but those who stand to inherit it are singular as well. 

Who Will Inherit? 

The heirs of the Silent Generation and baby boomers are primarily:

• Generation X (born between 1965 and 1980),

• Millennials (born between 1981 and 1996), and 

• Gen Z (born after 1997).

  
  Financial services analysts predict that Generation X will receive the most money ($30 trillion USD) during the early parts of the Great Wealth Transfer. Millennials will get the next largest sum ($27 trillion USD), and Gen Z will receive the least amount of inheritance ($11 trillion USD).

Who stands to inherit these vast sums of capital is of critical importance because it will directly affect our economy and shape the future of investments.

How so?

By changing how we think of wealth and investing.

Millennials — who will come into a major portion of the Great Wealth Transfer — have very different perspectives from past generations on money and how it should be used. When millennials come into their vast wealth, their preferences and demands will change the financial industry. 

Millennials are Changing the Face of Investing 
With trillions of dollars of inherited wealth, the investing trends and preferences of the younger generations (particularly millennials) wield tremendous power.  

Unlike baby boomers, who invested primarily in stocks and bonds, millennials approach investing with a greater tolerance for high-risk, and a preference for alternative investments — including digital assets, crypto, and private equity. Not only do younger generations trust themselves to direct their investments and distrust the return on investment (ROI) of traditional investments, they also embrace sustainable and impact investing. 

Their investment preferences are reshaping investing. Younger generations are putting their money into companies and opportunities that align with their values. This way of investing — and soon the sheer amount of money the younger generations will have to invest — is reshaping the investment landscape.

Millennials have a different approach to investing than their parents did. They see investing as a way of using their finances to promote their values. For millennials, it’s not just about making money – it’s about making a difference in the world. As the largest generation of investors that we have ever seen, millennials are poised to change and reshape the entire financial system.

When millennials come into their great inheritance as a result of the Great Wealth Transfer, they will seek investment advice from financial advisors and institutions that are able to adapt to their priorities and values. 

And that’s where family offices are pulling ahead in the effort to capitalize on the Great Wealth Transfer. 

Family Offices are Poised to Pull Ahead in The Great Wealth Transfer

Family offices are private wealth management advisory companies that provide financial advice to ultra-high-net-worth individuals. Among other things, family offices provide personalized wealth management solutions for their clients. Because these offices are generally smaller firms, they can cater to their client’s individual needs — providing customized advice. 

Because they are smaller firms, family offices are more capable of responding to the changing needs of their clients. Thus, they are more adaptable than larger wealth management firms. Which is why family offices appear to be the preferred choice of the next generation of investors.

As noted, Gen Z and millennials have a different perspective on investing than their parents did. For them, their money needs not only to grow, but to be used in a manner that can improve society and our world. In addition, having grown up with technology, the younger generations want financial services that understand, use, and embrace technology and technological innovations — whether it's cryptocurrency, Artificial Intelligence (AI), or blockchain. In addition, a company’s transparency and communication are also essential to the younger generations. Forward-thinking family offices are already adopting technology that makes their systems faster and communication easier, creating transparency, and investing in private equity and cryptocurrency, making them more attractive to younger investors.

Because family offices are already serving the top tier of wealthy clients, and because they are already embracing dynamic technology, increasing allocations to private equity, and even innovating by making direct investments for the first time, these less rigidly run companies are expanding across the globe. 

Ultimately, it is the ability to pivot and adjust to changing times and expectations that will give family offices a competitive edge in capturing some of the $90 trillion USD dollars about to change hands. 

New Policies Could Bring Private Markets and Crypto into Retirement Accounts.

According to recent announcements, President Trump is considering an executive order that could allow private equity firms to invest in private 401(k) retirement accounts. If the proposal is adopted, it would allow individuals (“retail retirement savers”) to access private equity while at the same time providing a new pool of capital for private equity firms.

With massive amounts of capital about to change hands due to the Great Wealth Transfer, including money from baby boomers’ 401(k)s, followed by the new generation investing in retirement funds, Trump’s proposal could have several significant impacts on the investment landscape. 

First, (as noted above), because those who stand to inherit from the Great Wealth Transfer favor alternative investing, retirement accounts will likely include both private equity and cryptocurrency. 

Next, a Trump executive order could democratize private equity investing, and increase investment opportunities for retail investors who want to diversify their investments.

Finally, allowing retirement plans to invest in private equity will expand the investor pool for private equity firms.

While there are, of course, both pros and cons regarding this proposal, one thing is certain: Trump’s proposal, and the Great Wealth Transfer, have the potential to completely transform our ideas of investing and how inherited wealth is invested.

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