GENERATIONAL WEALTH

In an age of high-speed technology and instant Google answers, Millennials expect even their investment information to be immediately accessible.  One-click access to online banking is a given for younger people and this also extends to their investment accounts.

Next Generation Age Groups

• Generation X is the demographic cohort following the baby boomers and preceding the millennials, with the generation being generally defined as people born from 1965 to 1980. 
• Generation Y (Millennials) are the generation born between 1980 and 2000 and lived through the global financial crisis in 2008. They are more distant from the tribulations of World War II and its aftermath, an event that helped shape their parents mindset about money.
• Generation Z, colloquially known as zoomers, is the demographic cohort succeeding Millennials and preceding Generation Alpha. Researchers and popular media use the mid to late 1990s as starting birth years and the early 2010s as ending birth years. Most members of Generation Z are children of Generation X 

The generation gap between parents and their adult offspring in the 1960s repeats itself today, this time with the Baby Boomer generation as the old-fashioned group.

“Investing has radically changed since my parent's generation," says Richard Vibert, a Millennial venture capitalist with Arbor Ventures. “Boomers thought in terms of saving from a young age to buy a house.  The young generation is more interested in investing in assets like cryptocurrency and in real estate in another country that you can buy via an online platform, rather than owning a home."

The XYZ Generations focus on near-term goals such as funding their own expenses so they don't have to rely on their families. She says their parents, the older generation, were more focused on saving for specific goals such as marriage, a family and retirement.

The older generation is famous for saving money for the next generation and not spending money on themselves.  But, millennials are more likely to spend more and save less because they are confident in their ability to earn money. In addition, they know they have their parents' savings to spend."

The Young Generation people who are interested in long-term investing rely heavily on technology. 

While their parents probably viewed financial success as keeping a job for the long-term, climbing the corporate ladder, saving a comfortable nest egg and retiring, the young generations have a different perspective.

They are more likely to look up to someone who has built their own business, sold it and built another.  Success is less about earning a decent wage and more about admiring entrepreneurial innovation.

That attitude extends into ideas about work, too.  For generation XYZ work and personal lives are intertwined, which motivates them to think about working more rather than aiming toward a future retirement.

That entrepreneurial, self-sufficient ambition impacts the way next-generation individuals approach investment and wealth planning.  This generation is very different from their parent's when it comes to getting financial advice.

Their parents trust us completely and don't need a second opinion on anything.  The next-generation people are new to this, so they want to check around and make sure they know almost as much as we do.  They ask a lot of intelligent questions and find copious amounts of information on online trading platforms that provide free reports and more.  The next-generation investor comes to me with materials in hand.

While some Millennials have earning power on their own, many look ahead to inheriting their parent's money and need to learn how to incorporate wealth planning into their lives.

The number one priority of the next generation, who anticipate needing to manage their parents' wealth is to preserve that wealth.  But, they also want to try to make more money on their own, so they'll ask their parents to trust them with $1 million that they will invest.

Technology influences the way Millennials invest, whether they are making personal decisions or getting wealth planning help from an advisor.

Vibert says there's a place for financial advisors because of the importance of building trust and human relationships. He relies on his friends and connections through social media to make decisions now, but he recognizes that in the future he may want assistance with wealth planning from someone who can distill data and personalize it to his needs.

Individualized wealth planning will become necessary as generation-next has more wealth to manage, but she anticipates they will always access the internet first and then verify information with an trusted advisors and friends.

Customization is important, so wealth managers who know how to add value to individual investors will be able to attract generation-next as they inherit their parents' money or build their own wealth.

Generation-Next persons are more likely than their parents to focus on responsible investing that may be both financially worthwhile and have an impact on their social interests, such as the environment or development in third-world countries.

To build a relationship between generations and financial advisors, we need to make sure we provide them with information about things that interest them and fit their lifestyle.

Each generation impacts the world and evolves the way it thinks about investments. Just as their Baby Boomer parents shaped the world they inherited, generation-next will continue to shape the future of the financial world.

Families will face numerous challenges as they work to manage their investments and wealth and protect their legacies. In the life cycle of a family office, the role that the rising generation (rising gen) will play is often a challenging question. Defining future roles within the family is one of the primary challenges of the rising gen.  Here are some of the issues they face.

Five Primary Challenges

The Family Office Exchange (FOX) has identified five key challenges, and while they range in degree of prevalence, the primary areas that need addressing are:

1. Defining future roles in the family
2. Leadership and skill development
3. Navigating family dynamics
4. Communicating between generations
5. Investment strategy

Those top two challenges are huge. Whether there’s an operating company or not, having a generational structure with defined roles and communicating expectations about what’s required at each stage of development are key. Sometimes, it’s helpful to view this process through the lens of transition planning and inclusion rather than “succession,” which we know can be a scary word.

Advisors who work with family offices on transitioning should focus on normalizing engagement. From very early ages, families should capitalize on opportunities for age-appropriate education. Think of the idea of a "kids' table" at family holidays—it's the right place to be for certain ages, but sooner or later kids move up and transition to the “big table.”

Defining Future Roles

Defining future roles is the greatest challenge for many families. It involves having positive and engaging conversations with children from a young age. Parents should always emphasize that children should pursue what they’re interested in, but even in the most supportive of environments, families aren't always able to articulate the exact roles of the rising gen. The leadership generation needs to define what family involvement and readiness look like, and the rising gen should understand clearly what it takes to meet those expectations. What special skills exist that may inform the roles they each play? It's never a "one size fits all" approach, which is why it’s such a large challenge.

Poor Communication

Poor communication can harm transition planning, and it can play a part in the other identified challenges, such as defining roles, navigating family dynamics and leadership development. For the rising gen to be engaged in family office matters, they need to feel that they’re heard and that their opinions are valued. Simply being included in conversations, being invited to take part, can significantly help with this challenge. Without addressing this challenge, family offices risk failing with most, if not all, of the others. Only with communication can the rising gen find the space to come into the office and make their own way. It’s these softer, qualitative skills that can lead to breakdown in the family. Communication, trust and shared values are the top success factors that lead to thriving, healthy family systems. 

Capability

Is the rising gen capable of planning for the significant assets involved in the family office? Too frequently, well intentioned families assume that the rising gen aren’t ready to assume any responsibility, and it’s not their time. Well, their time is running out. The rising gen are curious and interested now. If families push them out, they’ll  spend their time somewhere else, and “when their time comes,” families may have missed the window of opportunity to seize their curiosity and eagerness  It’s critically important to engage them if the family office is going to continue to thrive. For the rising gen to be capable of succeeding the active generation, there needs to be a careful and highly deliberate process for involvement, training and development.

No Assumptions

When engaging with the rising gen, family office leaders—including family members, nonfamily member employees and outside advisors—should make no assumptions about particular individuals despite the sweeping generalizations or data we see about different generations. Most people wouldn’t want someone to paint a picture of them and their entire future based on how they acted in their teens to early 20s. Think about that and give the rising gensome grace. Allow them time to grow up while simultaneously making space for them to be involved in the family office.

Inclusion

The goal is incremental inclusion, which is achieved through clear communication around important topics, such as defining future roles. Although the rising gen may be a long way from having a vote, give them a voice by allowing them an opportunity to share opinions. Alternatively, simply extend an invitation to observe certain meetings and discussions. Incremental inclusion really, really matters. Families often collaborate on different group projects, assemble junior boards or appoint the rising gen as board observers. These forms of incremental inclusion promote open lines of communication and information sharing, which, in turn, foster inclusivity and engagement and provide learning and development opportunities, all of which prepare the rising gen for their impending transition.

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