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When wealth changes hands. Focusing on the next generation.

Wealth planning is changing as the next generation is set to take over assets in the coming years. Asset managers are therefore asking themselves how they can attract the next generation.

Large transfer of wealth to the next generation

By 2030, around 30% of global wealth will change hands – to those of the next generation. However, the transfer of wealth to the next generation is only part of the reason behind the change in the client pool seen by asset managers.

Wealthy women will also gain importance as a client segment for asset managers. At USD 70 trillion, women already account for around 33% of global wealth, and the expected asset growth rate in this segment for the next four to five years is more than 7%.

These developments mean that wealth management is sure to change in the coming years. If asset managers want to position themselves well with the next generation and with women, they need to know the values and expectations of these client groups with regard to asset management.

The next generation is committed to sustainability

Material value is not as important to the next generation as it is to the current one. The next generation would rather create new, exciting opportunities with their assets, which will be valuable for them in the long term and ideally lead to positive changes in society, with sustainability firmly at the forefront.

Sustainable investments are very popular with the next generation and wealthy women. Around 90% of these clients are interested in environmental, social, and corporate governance (ESG) investments and want to be actively involved in investment decisions. This means that sustainable investments will account for around 15% of total investable assets in the future, which is an increase of 21%.

Assets held in sustainable investments are growing

The growth rate of traditional investments between 2016 and 2019 was significantly lower than that of sustainable investments.
Source: BCG Global Wealth 2020 Market Sizing

Asset managers need to adapt

Due to the change in the client pool and other trends such as increasing personalization or increasing client expectations of their advisors, the role of asset managers is likely to evolve from a traditional relationship manager to a holistic life consultant. Many next generation clients want comprehensive support that is optimally tailored to their personal needs and preferences.

In a short interview, Anna Zakrzewski*, Managing Director and Partner at the Boston Consulting Group (BCG), explains how asset managers are able to meet changing client needs.

Ms. Zakrzewski, how can asset managers anticipate the trends in wealth management?

Asset managers need to review and rethink their service models and offers. As the next generation is increasingly focusing on sustainable investments, asset managers need to offer exciting alternative asset classes. This doesn't mean that asset managers need a larger offering, however, but a better one.
It is also important to approach clients proactively and find new ways to engage with them. Clients need to feel like they are meeting with the right experts to discuss their individual needs. Asset managers are therefore advised to expand their ecosystem where necessary through new partnerships so that they can offer clients tailor-made solutions based on this newly acquired expertise.

Are there any opportunities for asset managers to prepare themselves for changing client needs?

Well-informed and more sophisticated clients want a highly targeted and individualized offering. They don't want the standard products, but rather personalized solutions. In the future, being able to personalize the service models is an absolute must and asset managers should therefore see this as an opportunity to make the consultation process much more authentic. The personalization and the authenticity that goes with it gives the client the opportunity to benefit from a unique offering tailored to their individual situation.

How can asset managers position themselves to attract the next generation?

Independence is very important to the next generation. Consequently, they don't necessarily want to entrust their wealth management to their parents' financial advisor, and instead select asset managers primarily based on their ESG offering, value-based pricing, and a high level of transparency. The option to receive a holistic advisory process is also a decisive factor. If asset managers are able to tailor their offering to the needs of the client and offer an independent and comprehensive life consultation service that also includes areas such as retirement or inheritance, this will make them well placed with the next generation.

Revision of inheritance law and its implications for asset managers

With regard to inheritance, this is a good time for asset managers to review any changes with their clients. After more than 100 years, the Federal Council has decided to revise the current inheritance law, which originally came into force in 1912, in stages.

This staggered process will allow legislation to react to the changes in demographic as well as family and social aspects of life. In 1930, for example, the number of private households made up of just one to two persons was only 12%, compared with 45% in 2015.

Society is developing and therefore so must inheritance law

The number of households without children tripled between 1930 and 2015.
Source: Credit Suisse

Asset managers need to be aware of these changes

Social changes mean that there is now a much greater need to make inheritance decisions in favor of a partner or charitable institutions. Current inheritance law, however, severely restricts decisions such as these from being made, so the following revisions will therefore enter into force from January 1, 2023:

  • The compulsory portion of descendants is reduced from three-quarters to 50% of the legal claim to inheritance.
  • The compulsory portion of parents is completely eliminated.
  • Removal of the right to a compulsory portion in the event of a pending divorce or dissolution proceedings; spouses and registered partners can now be excluded from inheritance by will.
  • Better possibility of contesting lifetime gifts and last wills not reserved in inheritance contracts.
  • The tied pension provision (Pillar 3a) is not part of the estate, but is taken into account when calculating compulsory portions.

In subsequent stages of the inheritance law revision, more legal aspects and corporate succession will be addressed. The latter in particular is a focus point as it is crucial for many SMEs. The key issues are balancing the claims of the person willing to assume the assets against the remaining family members entitled to inheritance as well as determining the credit value.

Revision offers new opportunities for asset planning

In an interview, Sibylle Brodkorb*, Team Leader in Inheritance Consulting & Execution at Credit Suisse, addresses the need for action by asset managers with regard to the inheritance law revision.

Ms. Brodkorb, what does the inheritance law revision mean for asset managers and their clients?

Asset managers should anticipate the upcoming changes. This means proactively approaching clients and informing them about the revision, because it could have a significant impact on each client's life situation. Estate planning should definitely be reconsidered. It is also worthwhile for asset managers to continue to monitor the political decision-making process for the subsequent stages of the inheritance law revision.

How does the inheritance law revision create new opportunities in asset planning?

Since the freedom to dispose has been increased, there is now a great deal more creative leeway – for cohabiting couples and blended families – for example. This is thanks to the increase in the freely disposable portion, which is no longer taken up by compulsory portions. In this respect, it makes sense to revise estate planning for cases where, up until now, compulsory portions had to be taken into account.

Should inheritance contracts also be adjusted after the announced revision?

Not necessarily. It is certainly advisable to carefully review inheritance contracts with clients – for example whether an opening clause has been established and whether the survivor can dispose of the assets through donations in their last will. If the asset manager determines that a change to the inheritance contract would be useful, it then depends on whether such an event has already occurred within the scope of the contract or whether the contracting parties are still living. An inheritance contract can only be amended with the agreement of all the parties that concluded it. At Credit Suisse, we offer services to support asset managers when reviewing inheritance contracts.

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