Providing the Right Advice for All Ages
Whether it’s about how they spend money or how they spend a Friday night, if you ask three generations of a family the same question, you probably will not hear the same answer.
Those generational differences can also crop up in the advisor’s office over a host of issues, according to a survey by U.S. Trust.
A recent poll of 642 high net worth and ultra high net worth clients highlighted many hot topics. From grandparents to grandchildren, each saw their financial responsibility to their relatives differently, underscoring the difficulty of balancing family accord with financial security.
"These three generations of wealth all approach life, and investing, from different angles that reflect their diverse experiences," said Keith Banks, president of U.S. Trust. "Understanding these generational differences is important for the wealth advisors and other professionals who guide these families, since it will enable them to better serve their clients and build stronger relationships with them."
The survey divided participants into three age levels: Generation X and Generation Y (aged 18 to 46), baby boomers (47 to 66) and those over 67. Questions focused on inheritance, elder care, and personal and financial security.
When it came to their role in providing financially for other generations in the family, the youngest group, Gen-X and Gen-Y, was the most proactive. Forty percent had established a plan for their parents’ elder care needs compared to only 20% of baby boomers. Fifty-four percent of the younger group versus 42% of boomers had paid for their parents’ medical costs.
Gen-X and Gen-Y and the generation older than boomers agreed on the importance of passing the wealth along generations. Seventy-six percent of the youngest group and 73% of the oldest thought leaving an inheritance was important whereas only about half, or 55%, of baby boomers shared that belief. One in three, or 31%, of those who said that leaving wealth for their children was not important said that they would rather leave money to charity.
"Our survey points to a shift in generational behavior and outlook, most likely shaped by personal experience and societal responses to economic realities," Banks said. "The next generation has not experienced the consistently strong economic growth or investment returns that baby boomers experienced during the longest bull market in history."
Parents’ trust in their children may also have affected their attitudes toward inheritance. Six in 10, or 61%, of wealthy parents are apt to believe that their children are not prepared to handle financial responsibility. That number dropped even lower for baby boomers, only 32% of whom are confident in their children’s ability to carry on the family’s financial legacy.
In terms of talking to their children, only 37% of wealthy parents had spoken to them about their family’s finances. Those older than 67 who had not discussed the family’s wealth explained that it was because they were taught not to discuss wealth with anyone. Younger generations, including baby boomers, said that they had not yet had the chance or they did not want to influence their children’s work ethic, according to the survey.
On the whole, the majority of survey participants had some kind of estate planning in place. Wills, living wills and power of attorney were popular. However, many wealthy individuals, especially Gen-X and Gen-Y, did not have a trust. Only 51% of survey respondents had a revocable trust and 22% had an irrevocable trust.
Trusts fared somewhat poorly because of misunderstanding or lack of professional guidance. According to the survey, 43% believed that outlining their wants in a will replaced the need for a trust. Others (31%) were procrastinating, while 17% believed they did not have enough money for one.
Moreover, despite potential tax law changes in 2013 that could raise estate taxes, only a third, or 33%, of participants mentioned that they intended to reduce the size of their taxable estate this year by giving a financial gift to a loved one or a charity.
According to the survey, the youngest generation favored growth over preservation when selecting investments, while older generations opted for low-risk strategies. When it came time to take stock of those investments (no pun intended), over half, or 54% preferred customized benchmarks to broad market benchmarks. Among the youngest generation, 77% wanted value customized measurements versus 52% of boomers.
As for privacy and security, many Gen-X and Gen-Y participants reported that, not surprisingly, they were more familiar with the risks of new technology and had taken more steps to protect themselves. Thirty-seven percent of that age group was concerned with privacy compared to 20% of baby boomers and 10% of those 67 and older. Although one in three high net worth households think social media and personal information have increased the privacy risks, only 13% have taken action by seeking educational information.
Results are based on responses from 642 individuals and families with at least $3 million in investable assets, not including the value of their investable assets.
Operating out of 140 offices in 32 states, U.S. Trust is a part of Bank of America’s Global Wealth and Investment Management Unit and oversees $333.8 billion in client assets.