Home / Banking Strategies / Getting ready for the largest wealth transfer ever

Getting ready for the largest wealth transfer ever

Millennials and Gen Z are starting to inherit money in what will end up as the greatest transfer of wealth in history.

Mar 21, 2023 / Marketing & Sales
BAI Host

Millennials and Gen Z are starting to inherit money in what will end up as the greatest transfer of wealth in history.

Steven Ramirez from Beyond the Arc is our guest to discuss the scale of this transfer, and how banking institutions can position themselves to attract some of those assets.

A few takeaways from the conversation:

  • Many of those heirs will seek a different banking institution, so banks need a thought-out relationship strategy to try to get or keep these younger Americans.
  • Banks need data insights to capitalize on this massive wealth transfer, so extracting it from aging core processing systems or other siloes should be a top priority.
  • The branch may help on the relationship front, but to be successful, front-line bankers will need a 360-degree view of the relationship and better digital tools.


Steven Ramirez, CEO at Beyond the Arc, welcome to the BAI Banking Strategies podcast.

Terry, thank you. I’m very glad to be here.

So Steven, we hear plenty about the massive wealth transfer that’s probably started already as boomers are passing down their money to their heirs. Start us out if you can, with a basic lay of the land here, including how much money are we actually talking about?

I would think about this more as a long wave as opposed to a one-and-done situation, and as we go it just becomes more and more important. So just a couple of years ago we were looking at an overall, across the economy wealth transfer of about a staggering $30 trillion. But the stock market has been up the last couple of years, so that has now ballooned to probably $68 trillion or more, and so that makes it the single biggest wealth transfer ever. This is not just a situation that we always see. There really is something very tremendous happening here in terms of this transition, and I think that the other dynamic to this is that the inheritees, the beneficiaries, both Gen X and millennials are also really different. So we’re seeing a huge change and we’re seeing very significant differences in both demographics and outlook.

We will dig into that demographic part and also explore this $68 trillion, which quick math in my head is more than three times U.S. GDP annually, so we’re talking about a boatload of money. But now that we have a sense of this opportunity, again keeping the discussion at a high level for now, how do banking institutions tap into the opportunity?

I think that the way that many banks and credit unions have been operating, the basic business model has not changed significantly over the last five decades, and I think that we now are at an inflection point where there has to be a change, and I think that they tap into this opportunity by, first of all, a shift in their thinking where customer experience strategy is first. To build on that, there really is a technology enablement in the form of fintech solutions that are required to drive personalization at scale. And then finally, I think to shift away from thinking about individual products, or even bundles, to really creating solutions for customers. So these are things that are required in the way they do business if they want to capitalize on this wealth management opportunity.

You talk about this being a long-term problem. One thing that is different here, at least in the past dozen years or so, is that interest rates are higher. The Fed has been on a tightening cycle and rates are higher now than they have been probably since the great recession in early 2008. So with rates higher, Steven, it does make a number of banking products like CDs and even savings accounts, an easier sell. But is this just about products and sales?

I think it is not about products and sales, and I think that that is actually one of the limitations that is holding banks back. I think that, in that low rate environment, bank products were from a savings perspective largely irrelevant, and banks really became a conduit for transactions. It was just a way to be able to move money – moving money and payments ruled the day. But now there’s really this shift and there really is an opportunity for banks to have deeper engagement with customers about their financial future and to be able to talk to them about their financial health. This is the critical nature of this opportunity. It’s that now there’s a chance for banks truly to be part of that conversation. As if that wasn’t enough, I think that there’s also, Terry, a really important pivot here from a bank’s P&L perspective, which is the opportunity to drive additional fee-related income for advisory services, which again, banks are only starting to scratch the surface.

Our research at BAI indicates that the younger generations, the millennials and the Gen Zers, they’re open to starting out with the same bank that their parents use, but that they’re also ready to jump ship at the drop of a hat to a different bank for a better experience. So how do you build relationships with millennials and Gen Z? What can banks be doing now that they’re not doing, or if they’re already trying to do something, how can they do it better?

One of the research stats that I point to is there was a study by Cerulli Associates that said 80% of heirs expected to find a new advisor once they inherit. So I think that speaks exactly to the circumstances that you’re talking to. It’s that I think that beneficiaries are open, but they’re not finding what they want. And I think that is because this millennial audience in particular truly is different and different in very significant ways. One of the key differences is that financial services and wealth management has been incredibly male-dominated – male-dominated in terms of the number of advisors, but also two-thirds of American households have men as the key financial decision makers. But, Terry, that is all changing. Millennials don’t have the same family structures, not in the same proportions, and women are going to exercise a tremendous amount of financial decision making, and I think that these demographic shifts are really profound for how banks have to engage to be able to maintain and build relationships with millennials and Gen Z.

Let’s dig into that a little bit here. You make a point of talking about women and about the gender-related differences here. The different value sets might be a good way of putting it for the younger generation. How does it change that maybe a lot of these heirs are going to be women, and what that might mean for banking opportunities?

To me, this really underscores the importance of taking a customer-centric or customer experience approach. It’s going to vary for banks in every geography. It’s not going to be across the board. But what it I think it’s going to entail is really understanding and having a tailored strategy for specific customer personas that you are planning to serve. So, for example, in some cases it may be that your bank really homes in on the opportunity for let’s say, professional women as investors. You may have a secondary segment that is suburban millennials with high disposable income. Having this real segment and persona focus I think is going to be the driver of the business. And you can’t just sit around the table and just dream this stuff up. Really underlying this, and something we haven’t talked about yet, is the importance for banks therefore to develop these data assets and to use data science and predictive analytics to gain the insights to not only define these personas, but to take action to drive their relationship with these personas.

On the data side, banks are awash and data as we both know, and trying to harness it, trying to tease out what’s valuable and what’s not valuable, what’s predictive and what’s causal versus what’s coincidental. It’s a real big lift for a lot of institutions. How do you put data to work to do this?

Let’s think about community and regional banks because I think that they’re in an even more difficult situation. While they have a lot of data, they have two problems. One is that the data is locked into very constrained core processing systems that they do not have easy access to be able to do advanced analytics, and so therefore they are reliant on their core processors to be able to add transparency, to just to even be able to get at the data. I think that’s one challenge. The other is that because of the architecture and the ecosystem of banks, they have many, many providers now. It’s not just the core processor. They’ve bolted on so many different solutions that if you were to diagram it all out, a lot of times it looks like spaghetti, so being able to tie together the data to be able to analyze it, like these are real challenges and they’re not trivial. I think the point is that the imperative is greater than ever, and now we can see how the need ties to business opportunity. So OK, we know data is a significant issue. If we can really harness it and drive insights, we can better capitalize on opportunities like this wealth transfer.

Larger full service banks have wealth management divisions and trust departments. So is this wealth transferred trend, is this just a play for the bigger institutions or can smaller community banks and credit unions, can they play, too? And if they can, where in the market asset-wise is there sweet spot?

Definitely smaller institutions can seize this opportunity, and I think it’s important now to introduce the fact that to address wealth management, it is often a combination of bank services or private banking, trust services and the investment management piece. The bank and trust falls within the bank’s licensed banking activities, but the investment management piece is separately regulated and requires a relationship with a broker dealer. So that’s either a broker dealer that’s owned by the holding company or a broker dealer that they affiliate with as an independent. Banks have a pathway to be able to play in this space, and community banks have been doing this for decades. This part of it is not new, and I think that we’ve seen this range of banks at the $1 billion to $5 billion level be able to have very viable wealth management businesses. I think that what is new is the opportunity, though, for a small bank to really scale those wealth management offerings through fintech partnering. That I think is the key opportunity that now fintech helps to level the playing field between the smaller players and the larger players.

Community banks stress their focus on relationships. That’s what they see as their key market differentiator, but how much can that level the field for them, even with fintech partnerships, how much can that level the field for them against the big players that can really compete more effectively on scale?

Scale is increasingly important, and I think that customer relationship has a different meaning to customers than it does to the financial institution. From a customer perspective, from a client perspective, they really want to see the advice and guidance and the solutions that banks can bring to the table. But for many banks, a relationship just means I’m selling you a bundle of products. Yes, a true relationship can be an enabler, can be one of the components that fits together with fintech, but just saying that you’re going to focus on customer relationships is incomplete without some of these other pieces.

If we’re to believe the headlines, banks are working diligently to transform their branch lobbies from transaction hubs into advice centers. The wealth management side is certainly associated with advice, as you referenced in your last answer, but how do you think a revamped branch structure would help banks on that front, and is that enough to make the right connection with a millennial or a Gen Zer?

I think that there is an opportunity to use the branches to engage in face-to-face connections between humans. And as a huge advocate for fintech, I still believe that that human connection is incredibly powerful and difficult to replicate. So I think that there’s a huge advantage there. But being face-to-face is not enough, and I think it is about really driving this discussion about people’s financial futures and their financial health and banks really being able to play that part. Now, I think in this wealth management discussion, there is one constraint, which is this separation between bank products and brokerage products. So I think that the nature of that conversation has to be well defined so that, for compliance reasons, you’re landing on the right side. So the branch can be a place for this to take place. It requires the right level of staffing, the right types of staffing, the right licenses in place. So there’s many factors, but I do think that banks have an inherent asset if they can properly leverage it.

Another part of this branch transformation is adding more digital capability. If you were in charge of deciding the digital capability for a new branch, what devices, what other technology would you insist that there be available to the front-line bankers, perhaps to make them more like fintechs?

I think there’s two things that the front-line bankers need. I think the first thing that they absolutely must have as quickly as the bank can provide it is a full, 360-degree view of the client relationship. It really should understand from the bank’s perspective, all of the touchpoints that the bank has with the customer. The customer knows it. The customer knows all of the points at which they’re interacting. The bank usually does not, and certainly the front-line banker does not. I think that, first and foremost, is the key technology enabler that’s necessary. But I think the second is the digital enablement in the branch, and I’m a big fan of actually the in-person video connection, so that if the staff in the branch cannot address a certain product or financial need, that you can really speak with, say, a video banker or a video broker right from the branch lobby to be able to address that. I think that client insights and enhancing the offering through video banking onsite are two ways that banks can enhance their capabilities.

Aside from the big money centers and the super regionals, banks tend to think of themselves as serving a specific geography, but digital makes everywhere a potential target. Is this broader reach with wealth management something that smaller banks can and should aspire to, and if so, what should they be thinking about and doing if they want to pursue that course?

So yes, I do think that this path of wealth management is one that helps banks get beyond their current footprint, with a couple of caveats. I always believe that you should first do it well in your home footprint, in your home market, and then scale. We’ve learned that from Silicon Valley. That’s part of the Silicon Valley playbook. Do something well, work out the kinks, then you scale it. But then I think the second part of that though is in understanding the bank versus brokerage regulation and the need to have a broker-dealer that is licensed to operate in those markets. So there’s just some compliance planning to make sure that you’re enabled to do that. The third thing is really to be able to expand past your footprint and to scale. That’s the importance of working with a fintech partner, and I think that there’s a lot that a fintech partner can bring to the table in terms of enhanced capabilities and reach.

Let’s finish up our chat by bringing it back around to where we started. This massive intergenerational transfer of wealth that’s already happening and will accelerate in the years ahead, $68 trillion. Banks and credit unions have a lot riding on this and being the incumbent, it’s a head start, but it doesn’t guarantee anything. So what’s the single best piece of advice you have for a banking institution to improve the chances of keeping the money where it is, and make it something that you haven’t already said in this conversation?

I have one very tactical piece of advice. Put this item on the agenda of your next board meeting. This is something that the board needs to address at your next meeting. How is the bank going to leverage data and data science for these insights? Who are you going to serve? How are you going to extend your capabilities with fintech? And then how are you going to go to market? These are the questions that need to be on the agenda at your next meeting.

So Steven Ramirez, CEO at Beyond the Arc, many thanks again for joining us on the BAI Banking Strategies podcast.

Thank you, Terry.