Insights
Future proofing your business: The 'Great Wealth Transfer'

We're on the brink of the ‘Great Wealth Transfer’, where trillions of dollars will be deposited from Baby Boomers to younger generations over the next two decades. In New Zealand, this transfer is expected to involve around $1.2 trillion—an amount that eclipses the total value of all companies on the NZX, dwarfs current KiwiSaver funds, and represents over 80% of the total value of residential property and the land it sits on [1]. The greatest wealth transfer in history | BusinessDesk.

The implications of this transfer are important. Firstly, we are more likely to see wealth evenly distributed between male and female siblings for the first time in generations - due to changes in gender equity and succession planning norms. Secondly, because women live longer than men, more of them will become responsible for distributing assets. And lastly, the Gen X and Millennials, who are lucky enough to be benefactors of this wealth, will have different ideas regarding what they do with this money.

In this article we talk about:

The changing financial landscape of younger generations

Investment priorities & financial literacy to empower women

Future-proofing your advisory practice: Key takeaways

We believe it’s important to understand that younger generations are likely to have different ideas for the future compared to their parents and consequently their investment approaches will also differ.

It’s generally regarded that Gen X and Millennials are expected to prioritise ethical considerations, particularly in areas like climate change (yay for Pathfinder). Benefactors of wealth may be more inclined to take risks like starting businesses or invest in emerging markets and technologies. And many articles suggest an uptake in technology driven strategies like online platforms, crowd sourcing and social media (think PledgeMe, Sharesies, Snowball Effect, Robo-advisers and InvestNow. It’s also likely we’ll see changes in spending and charitable giving due to generational shifts in values.

In a recent study that Bank of America conducted on 1052 individuals over the age of 21, with at least $3 million in investable assets (excluding their primary residence), they found some interesting results: Firstly, most investors between 21-42 didn’t think they could achieve above average returns from traditional stocks and bonds. Young investors believed there was opportunity in the digital asset space and 50% held cryptocurrency. Ownership of sustainable investments has doubled since 2018 and 73% of millennials, (compared to 21% of older respondents) use sustainable investments - which 72% of all respondents agreed can make a positive impact on the world.

According to a McKeinsey report, by 2030, American women are expected to control much of the $30 trillion in financial assets that baby boomers will own - a potential wealth transfer of such magnitude that it approaches the annual GDP of the United States. It begs the question – how will this alter the financial landscape and do women have differing investment priorities?

Studies show that women are more interested in financial investments that benefit both people and planet. According to a study by Cerulli Associates 52% of women would rather invest in companies that have positive social or environmental impact. That’s true for 44% of men. And according to the same article - women seem more motivated by wanting to do good than by investment returns or invest with their values in mind. This enthusiasm may help garner more interest in investing.

Although we don’t believe that there is a one-size fits all when it comes to women and their investment strategies, here at Pathfinder we have noticed a trend that implies that women’s investment priorities are likely to be shifting towards values-driven investing. Women account for 62% of Pathfinder KiwiSaver Plan clients and they have higher than average balances (as at 26.11.24 who specified their gender).

‍Financial literacy for women: It’s generally regarded that women are underserved when it comes to investing, financial literacy and employment in the industry. Financial Services Council reports from 2021 and 2023 say that over 80% of Kiwi women rate their level of financial wellbeing as moderate, low or very low; over 70% feel that financial wellbeing influences their overall well-being; and 69% don’t feel financially prepared for retirement.

Here are a few key takeaways that we think are important for future proofing your books as an adviser, knowing this transfer has begun:

Succession planning: Account for the differing ideas of younger generations and their visions for the future compared to their parents. It’s important to bring families together, rather than drive them apart. Consider investment strategies that deal with big challenges the world, and younger generations are facing.

Philanthropy: It’s likely we’ll see changes in spending and charitable giving due to generational shifts in values. “The practice of giving money away is a very good education system to encourage financial literacy and how you can invest for impact. And let’s face it, giving money to an impactful charity is more rewarding than buying a fast car.” Andrew Williams, Alvarium co-founder. It may be worth considering auxiliary inclusions into your advice process, such as strategies for impact through philanthropy.

Empowering women to make good decisions: It’s important now, and will be more important in the future, that the women in partnerships understand the intricacies of their families’ financial decisions and feel confident about what they are investing in. You as an adviser will play a key role in helping women and their families make decisions. With knowledge comes empowerment - as an adviser you have the ability to encourage and sometimes provide that knowledge.

Attracting more women into the financial industry: Speakers at the recent Financial Services Conference were unified by their frustration with the amount of female CV’s that come across the desk during recruitment phases. Adding to this Deloitte's analysis suggests that only 20% of leaders in C-level positions, within the finance industry, are women. Work needs to be done to encourage women into the industry. As a business owner or financial adviser have the responsibility to build capability in the next generation - consider mentoring, giving career building talks and thinking about ways to encourage diversity within your organisation.

“Diversity fosters the balance of thought that I believe will be essential in developing financial products that resonate with younger generations and support lasting and meaningful growth during this transfer of wealth. This $1.2 trillion opportunity will reshape New Zealand, and the financial industry will play a pivotal role in its outcome” — Simon Leach, Relationship Manager.