Over the next two decades, The Great Wealth Transfer is set to significantly change the landscape of wealth ownership in America. Historically, wealth management has been a predominately male undertaking but with the transfer of wealth from baby boomers to younger generations, women are poised to become the new face of wealth in our country.
For banks and trust companies, this impending change necessitates a strategic pivot towards understanding and meeting the distinct financial needs and preferences of women.
What is The Great Wealth Transfer?
Currently, about half of all wealth in the United States is held by baby boomers. As this generation passes away, a massive shift in demographics is expected as their wealth is inherited.
By 2030, American women are anticipated to control a substantial portion of the $30 trillion in financial assets that baby boomers will possess. Today, women control a third of total US household financial assets, amounting to more than $10 trillion. This shift is primarily driven by two factors, spousal inheritance and generational inheritance.
Around two-thirds of baby boomer assets are held in joint households where the woman is not actively involved in financial decisions. Since women tend to be both younger than their spouses and outlive them, much of these assets will pass directly to them. Any wealth that is not inherited by a spouse will be passed down to younger generations. Gen X, with its record-high share of single women, is poised to be the recipient of the largest portion of inheritances.
Consequently, women are poised to take center stage in managing significant wealth. This marks a departure from the historical narrative where they played a secondary role in financial decision-making.
How Women Handle Their Wealth
Women’s approach to wealth management differs significantly from men’s. This makes it vital for teams within financial institutions to understand these differences and adapt.
For example, research indicates that women are more inclined towards values-based investing, prioritizing companies that have a positive social or environmental impact. They are motivated by a desire to do good with their wealth, and often exhibit a lower risk tolerance compared to men, preferring to focus on real-life goals such as retirement planning, healthcare expenses, and emergency funds.
Women have been making huge wealth management strides over the past decade, in 2018 only 44% of women were investing outside of retirement, by 2021 that number had increased to 67%, and as of 2023 60% of women reported investing in the stock market. Even still, 40% of women think that they should be doing more with their money.
What Does The Great Wealth Transfer Mean for Banks & Trust Companies?
Financial institutions haven’t quite caught up or adapted to women’s needs. Many women feel underserved by the financial industry, perceiving it as built for men. In a survey conducted by Ellvest, only 38% of women said that they had a financial advisor to help them plan and invest a windfall such as they might receive due to the Great Wealth Transfer. This statistic may not be surprising when you consider that 50% of women say that finding a financial advisor who is a good personality match is very important. While women do not explicitly seek out a female financial advisor, it’s still worth noting that 72% of financial advisors are male.
The impending financial windfall from the Great Wealth Transfer presents an opportunity for banks, trust companies, and other financial institutions to bridge this gap and boost financial confidence among women. In fact, 86% of women say that investing makes them feel more confident. To attract and retain female clients and capture a share of the trillions up for grabs, wealth management firms must adapt their offerings. This involves evolving client service and business models to prioritize women’s needs and make them feel more welcome. Changes such as hosting women-only educational events and adopting a “full household” financial planning approach that involves both spouses in financial decision-making can go a long way towards creating an inclusive financial environment but are by no means the only steps needed.
One area that banks and trust companies would do well to focus on is estate planning. Given that women tend to live longer than men by nearly six years, and a growing number of women opting for unmarried lifestyles (remember that record high number of single women in Gen-Z), it’s evident that in the near future, they will be taking the reins in devising estate plans and establishing trusts. Financial institutions would do well to proactively tailor their services to the unique financial needs of women in estate planning to help them secure their financial legacies effectively. Women generally prefer to have professional financial advice more than men and are willing to pay more for it, which makes greater communication around accounts and policies an excellent starting point.
Read More: Sharing Policy Info with Grantors is Always a Good Idea
As the financial landscape undergoes a massive shift with the Great Wealth Transfer, banks and trust companies must reassess their strategies and readiness to meet the evolving needs of women. By creating value for the women they serve and ensuring their teams are equipped to navigate this transition, financial institutions can position themselves for success in the era of wealth transfer. Is your team ready to embrace the change and cater to the needs of the growing number of women receiving a financial windfall?
