Navigating the Great Wealth Transfer: challenges and opportunities for the next generation

The annual STEP Guernsey Conference this year had a strong focus on the future of private wealth, particularly exploring the impact of wealth transfer, governance, family dynamics, and the NextGen. In this article, Alex Smedley, Trust Manager at Praxis Guernsey, delves into the intricacies of managing and preserving wealth across generations.

Over the next two decades, an estimated $84 trillion[1] is projected to transfer to younger generations. This extraordinary succession will be a pivotal point for families and present unique challenges and opportunities that will impact the intricate nature of family dynamics across generations and test the flexibility of established financial structures. For the NextGen, this inheritance represents both a benefit and a potential burden.

The wealth management challenge

Building strong relationships with family offices, investment advisers, tax and other professional advisers is essential for ensuring the long-term prosperity of high net worth and ultra-high net worth families across generations. However, the effectiveness of these relationships relies heavily on the financial awareness and active participation of younger beneficiaries in the day-to-day processes.

Technology
Digital natives who have grown up with technology as an integral part of their life and are accustomed to a fast-paced, information-rich environment may find traditional methods of financial education lacking. Interactive, tech-driven learning tools, and real-time financial dashboards could be tools used in the future to engage with these generations effectively and these are a key part of our transformation programme.

The rise of digital assets, including cryptocurrencies and non-fungible tokens (NFTs), represents a new frontier in wealth management that will require a different approach to valuation, security, and regulatory compliance. Professional services firms are evolving their approach to meet these expectations, ensuring that younger beneficiaries understand the intricacies of wealth management and the responsibilities that come with it.

Inclusivity
Incorporating the NextGen into decision-making processes early on can foster engagement and a sense of responsibility. This can include inviting them to family council meetings, involving them in philanthropic endeavours, and introducing them to investment decisions. Such an approach not only builds their confidence but also helps align the family’s financial goals across generations.

It is also critical for successful relationships that each client is matched with the trust professionals they will work best with. At Praxis, we place a strong emphasis on establishing relationships that lead to close collaboration with our clients, based on common ground to ensure synergy and a matching 'wavelength'. It is therefore advantageous for firms to have NextGen members within their teams. This diversity and succession planning is not only important for the future prosperity of the firm, but also to ensure that all family members have access to a representative with the necessary skills who is aligned with the NextGen mindset, in addition to more senior staff members.

Family dynamics and intergenerational harmony

Family dynamics will play a critical role in the successful transfer and management of wealth. Key factors such as communication, trust, and shared values will be important in achieving a harmonious wealth transfer.

Bridging the generation gap
Differences in values and perspectives between generations can lead to conflict. While the current family generation may prioritise preservation and steady growth, the NextGens may lean towards sustainability, social impact investing, and technological innovation. It is important to facilitate an open dialogue where each generation can express their values and expectations, helping to mould the future wealth management strategy.

Conflict resolution mechanisms
In anticipation of these conflicts arising, establishing formal conflict resolution mechanisms within the family governance structure early on can help to resolve disputes more easily. This could involve regular family meetings, establishing a forum for mediation, or setting up family constitutions that clearly define roles, responsibilities, and the dispute resolution processes.

The future of wealth management

The role of a private wealth trust manager will continue to evolve, and the successful transfer of wealth to the NextGen will depend on our ability to adapt and innovate in response to their unique needs and values. This involves embracing technology, fostering intergenerational dialogue, and implementing robust governance structures that can withstand the tests of time and change.

As a practitioner, managing and preserving wealth across generations is a complex but rewarding undertaking. By addressing the specific challenges and leveraging the strengths of the NextGen, we can ensure that the legacy of wealth is not only maintained but enhanced for future generations.

One of Praxis’ next generation with seven years’ industry experience, Alex joined Praxis in 2019 and is STEP qualified.

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[1] www.cerulli.com/press-releases/cerulli-anticipates-84-trillion-in-wealth-transfers-through-2045

Please note that this article is intended to provide a general overview of the matters to which it relates. It is not intended as professional advice and should not be relied upon as such. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence. © Praxis 2023