Lack of holistic advice drives inheritors to regret

A colossal generational wealth transfer is underway. Over the next 23 years, aging populations across the US, Europe and Asia are expected to pass down a staggering $100tn to younger generations. For wealthy families, succession is not only a major financial transaction. It’s also an emotionally complex transition that requires expert guidance.

Yet, new research* reveals a critical gap. Families tend to focus intensely on legal formalities, without making time for the conversations that should shape their legacies or the strategic wealth management that should protect them. 

In a global survey of high-net-worth individuals (HNWI; net worth of at least $1mn and received inheritances of $100,000–$50mn) conducted by Capital Group, around 60% said they rely on lawyers to handle succession matters, while only about 20% use financial advisers. This constitutes a missed opportunity for families to gain more holistic support in building the legacy they want. The result is often confusion – and eventually regret at how inheritances have been managed. “We’ve built enduring partnerships with major wealth managers, grounded in the belief that expert financial advice and strong long-term investment returns drive better outcomes for wealth holders, especially in the context of complex inheritances,” says Guy Henriques, President, Europe and Asia Client Group at Capital Group.

How the next generation is shaping their legacy

Transparency and effective communication are critical to a successful wealth transfer. According to Lavanya Chari, Head of Wealth and Premier Solutions at HSBC International Wealth and Premier Banking, most wealth holders are aware of the need to prepare a succession plan and talk it through with their heirs, but a significant proportion are inadequately prepared to do so. “Talking about wealth and inheritance can be fundamentally uncomfortable and complex,” says Chari. “Unless they have professional support, a lot of families are just unable to kick-start those conversations.”

Three quarters of wealth holders in the study report challenges in communicating about succession planning. A lack of professional advice can leave them uncertain about how to structure their bequests in the way they want. Communication gaps can lead to misunderstandings, with inheritors feeling inadequately informed. 

This is leading younger generations to take a proactive approach to legacy, says Claudia Caffuzzi, Vice Chairman of J.P. Morgan Private Bank and Head of International Private Bank and Latin American Wealth Advisory. “We often see the next generation becoming very involved in the planning alongside their parents, to help ensure that the wealth transfer is going to maintain the family harmony and dynamics,” says Caffuzzi.

Dedicated family meetings are a strong choice for keeping everyone in the loop. “This creates a forum for people to ask questions,” says Caffuzzi, “to discuss shared values, the purpose of their wealth, and to agree on decision-making processes.” Advisers can facilitate such discussions and help structure family governance. They can also provide communication tools that allow families to share their financial intentions and set up legacy planning checklists.

Maximising inheritance potential

Advisers can not only help families navigate complex succession planning issues but also assist inheritors in making the most of their newly acquired capital. The research, however, points to frequent missed opportunities, with inheritance money often sitting dormant or underutilised. On average, only 22% of inherited capital is invested in securities or mutual funds and 11% in a retirement scheme or pension fund. This may explain why 60% of wealth holders are unhappy about the way they used their inheritance, with one third regretting having underinvested. 

Advisers can create investment strategies aligned with an inheritor’s goals, whether those are milestone-based or impact-driven. They can also help clarify the purpose of inherited wealth, such as supporting a business, funding education or making a philanthropic contribution.

By harnessing new AI-based tools, advisers can determine a wealth holder’s appetite for risk. “Once you understand someone's risk tolerance, it opens up avenues for how and in what they should invest,” says Jared Franz, Economist at Capital Group. “It allows for more tailored offerings for individuals as they think about investing their inheritances.”

Inheritors from a younger generation usually have little or no investment background (47% of wealth holders say they have inherited directly from their grandparents). These investors could benefit from an adviser’s experience and long-term perspective as markets fluctuate, explains Franz. An inexperienced investor might panic into selling during a market downturn, whereas an adviser could counsel patience, leading to a better eventual outcome. “Markets move up and down, and an adviser can help by reminding of the importance of staying invested for the long term and managing through short-term noise,” says Franz.

Building trust through early engagement

The study found that, while most wealth holders don’t leave detailed instructions for how inheritances should be used, they do expect heirs to seek advice. Involving financial advisers early helps them to build relationships of trust with future heirs and introduces the latter to the concept of proactive financial planning. 

Most importantly, early engagement helps prevent a breakdown of communication and, therefore, trust – a leading cause of wealth transfer failure. Franz confirms the importance of this mediating role: “Having a third-party facilitator ensures that what’s said is actually what’s heard.”