Print this article
BofA Private Bank Study: What Younger Clients Want Now
Editorial Staff
11 October 2022
Alternatives and sustainable investments are the keys to winning over prospects and clients between the ages of 21 and 42, according to the newly released Bank of America Private Bank Study of Wealthy Americans. The implications of asset allocation preferences are potentially huge. It explains why there is so much commentary on “alternative” investments and private capital markets at the moment. Typically less liquid than listed stocks and government bonds, these “alternatives” usually offer higher yields – an attractive proposition in a world of high inflation. The trend toward alternative investments is not just seen among different generations. A report by investment consultants Mercer has found that a growing number of wealth managers are diversifying clients’ portfolios into less liquid areas such as property and private equity over the next 12 months. The study found that 73 per cent of managers are thinking of making such a move. Last week, Preqin, the research firm, predicted that total assets under management among private capital investments could reach $18.3 trillion by 2027. The report found that the family wealth talk is happening but is starting late and doesn’t equate to financial preparedness. In other results, the survey said that the three topics high net worth people most want to discuss with their advisor today are tax planning , estate planning , and investing in an inflationary environment and best use of funds amidst rising-interest rate .
Eight out of 10 young investors favor alternative investments, such as private equity, commodities, real estate, and other tangible assets, according to the study. These investors are allocating three times more of their investment portfolios to alternative strategies and half as much to stocks than older investors.
Investors over the age of 43 believe that US equities offer the best opportunity for growth in the future, but young investors say digital assets offer the greatest growth opportunities, and nearly half have cryptocurrency holdings, the study found.
Nearly three-quarters of Millennials use sustainable investments and wealthy Americans overall have doubled their ownership of ESG investments since 2018, from 12 per cent to 26 per cent. This is critical because Millennial households will surpass Generation X in receiving wealth transfers before 2040, according to the study.
ESG appeal
Women and non-Whites are the most likely groups to consider sustainable investments for their portfolio, they sat that they understand ESG investing quite well, and review their portfolios for sustainability impact. This category has clearly generated extremely favorable publicity, with 72 per cent of all survey respondents agreeing that it can make a positive impact in the world.
Younger people were also more optimistic about their ability to achieve philanthropic goals; 87 per cent believe that their giving will be more effective than earlier generations. And NextGen clients are far more likely to gift through a structured vehicle such as a charitable trust, donor-advised fund and family foundation than older generations.
Financial behaviors and values, according to Katy Knox, The Private Bank’s president, “take shape early in life and live on in the legacies passed from one generation to the next.”
Nonetheless, the study underscored the differences in beliefs and preferences between older and younger generations. “As patterns of inheritance shift over the years from Boomers to Gen X and Millennials, the way that inheritors invest and spend will drive other changes,” the study stated.
Indeed, approximately $73 trillion will transfer to younger heirs over the next 25 years, with 63 per cent of transfers coming from Baby Boomers, who hold half of current US financial assets.
The bank drew responses from 1,052 US high net worth people. Respondents to the study were over the age of 21 with at least $3 million in investible assets, excluding primary residence.
BoA said that 68 per cent of parents surveyed say they have talked with their children about their family’s wealth, including how much money the next generation stands to inherit. On average, parents don’t initiate conversations about family wealth and its transfer until their children are at least 27 years old. Only 51 per cent of parents think their children are well prepared to handle family money or any inheritance they stand to receive. Some 58 per cent of respondents have limited or no understanding of trusts.