Intergenerational wealth transfer accelerating
The intergenerational transfer of wealth is speeding up and the industry needs to keep pace, a new report has suggested.
According to an AUSIEX report, On the Precipice of Change, Australia’s intergenerational transfer of wealth is happening faster than projected, with most Baby Boomers set to retire by 2028.
AUSIEX added this faster pace will also change the demand for some investment products, services and financial advice.
“Within five years, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but left the workforce by 2028,” the report said.
“It doesn’t stop there. In 2027, the first of the Baby Boomers will reach their statistical age of death (81 years for men and 85 years for women).
“The impact on the wealth management industry is, first, that Baby Boomer superannuation balances will start to deflate out of the system through retirement consumption and then through disbursement via the inheritance process.
“Second, Gen X are now the group preparing for retirement and will hold the large balances in superannuation. Third, Gen Z will soon be fully deployed in the workforce and the predominant demographic groups requiring to be serviced by the wealth industry will be Millennials/Gen Z.”
The report also noted Boomers exiting the workforce will see retirement phase withdrawals coming from the superannuation system’s largest accounts for the first time in its history.
“While it is hard to predict how the money will flow from where and to whom, we can make inferences based on what we see in the data that we know today,” the report said.
“If we start with superannuation balances, we find that the facts don’t really match the prevailing narrative that super is an inheritance tax planning device.”
AUSIEX added there needs to be a shift towards the needs and values of Millennials and Gen Z, who have arguably more grim income and financial prospects than those who came before them.
Moreover, the report noted that with the new generation expected to have appreciably lower expectations of being able to build wealth, and given its relative disengagement with the system, there may be a “considerable cultural shift in how and why the younger generations engage with the wealth management industry”.
Additionally, the report predicted that these changing demographics will drive a greater preference for ESG and greater access to investment structures such as private equity, through to the introduction of crypto assets, including central bank digital currencies.
The type of technology the industry uses will shift too, AUSIEX said, with financial advisers, specifically, expected to see the greatest need for technology change.
“Information, compliance, and education needs for new investment and new demographic types require support, and digital transformation brings opportunities like AI and new media,” AUSIEX said.
“The older generations are about to leave the system, the younger generations face different challenges than those that came before them, and the transition to the digital world is continuing apace.
“The industry and financial advisers need to prepare for change before the Boomer boom is over,” AUSIEX concluded.
