By Brian Lamb, Executive Vice President, Head of Retail Banking and Retail Brokerage
When I'm working on a wealth transfer plan with a family, I tell them they're making 50-year decisions—that the full impact of this plan won't be felt for decades. For those starting with some level of generational wealth already, they immediately know what I mean.
But for many minorities, this is new territory for them. They may not have an established history of how and when their families have managed a significant wealth transfer. They're the first.
And they're not alone.
We are in the midst of the largest minority and multicultural wealth transfer ever. There have been many catalysts for change in the past several decades that have driven this shift. But one stands out in my mind as perhaps the most significant—a different type of decision from several decades ago.
A Step Toward Equality
In 1954, the Supreme Court ruled on Brown v. Board of Education—prohibiting racial segregation in public schools. Federal courts had paved the way for that landmark ruling with landmark decisions of their own in Mendez v. Westminster. That case, in the mid- to late-1940s, helped end segregation of Mexican-American children in California schools. While policies and practices did not change overnight, children who entered school in the '50s were the first generation of minorities with broad access to public education.
When we do the math, we realize these children are the transformational leaders who are now retiring. Over the past 65 years, they became college graduates, entrepreneurs and highly skilled blue- and white-collar workers. They invested in pensions and 401(k)s and mutual funds and real estate. They sent their kids to college. And now, decades after Brown and Mendez, a whole generation of publicly and privately educated minorities is approaching retirement—having to make their own, individualized 50-year wealth transfer decisions. They are part of the baby-boomer wave that is transferring wealth across all races and genders.
Simply put, multicultural consumers are the fastest growing segment of the U.S. population—120 million individuals, with that number growing by 2.3 million each year.1
Over the past century—with the 19th Amendment, Equal Pay Act of 1963 and Civil Rights Act of 1964—women have also seen tremendous positive change. According to The 2017 State of Women-owned Businesses Report:
"As of January 2017, there are an estimated 11.6 million women-owned businesses in the United States that employ nearly 9 million people and generate more than $1.7 trillion in revenues."
Similar trends can be seen more recently for LGBTQ individuals as legal protections have been put in place and rights have been affirmed.
Overall, the landscape for wealth accumulation and need for financial advice has materially changed for people of color and other minorities. A more diverse group of retirees are facing a new and pressing challenge.
For the Individual
That challenge is one we know how to tackle. The wealth transfer planning process will be similar for any family—minority, multicultural, blended, LGBTQ, first-generation or otherwise—and applies across income levels. Assets are assets. Taxes are taxes. Diversification, risk-based returns, cash flow and other considerations are all basic tenets for any wealth transfer conversation.
While the tools of wealth transfer may be the same, many minorities may find themselves sitting across from a financial advisor who sees them as just another customer and who doesn't understand what makes their situation different.
Being the first creates more complexity. A family may not have the depth of knowledge on what documents are needed, what strategies to consider, what their advisor should bring to the table or which other professionals to pull in.
Even those who aren't technically going through a first-time wealth transfer—maybe a parent did leave them a small business, or there was a small inheritance—this next generation is facing a more complex financial landscape.
Since 2007, data shows that wealth is increasing significantly more for African American, Hispanics and other2 minorities compared to whites. All groups were hit by the financial crisis, and the median net worth has been growing across all groups since then. But while whites have seen an increase of 17 percent since 2013, blacks have seen a 29 percent increase, Hispanics 46 percent and others 52 percent.
In 2016, 26 percent of white families received an inheritance. For black families, it was 8 percent, and 5 percent for Hispanics. Those percentages for minorities are going to increase as their wealth increases.
Even with a wealth transfer plan in place, the lasting impact on the individual isn't over. There are beneficiaries to consider.
Once wealth is transferred, there will be a new generation of family firsts: the first to be inheriting a significant amount of wealth. Beneficiaries will need to consider how to use that wealth to create even more opportunity. Putting an inheritance toward more education, for instance, potentially leads to a higher wage, more opportunity and a better career trajectory. Additionally, along with more wealth comes more complicated taxes and the increased likelihood of bad actors, fraudsters and people asking for money.
That's why the common element everyone needs during the wealth transfer process—regardless of wealth, age or experience—is a financial advisor who can create a unique plan given their situation, and who can help simplify the decisions they need to make.
With the U.S. projected to become a majority-minority country by 2044, this goes beyond the impact wealth transfer will have for individual families. The opportunity, the collective benefits and the macroeconomic implications increase exponentially.
Where Fifth Third Bank operates, more than 13 percent of businesses are owned by females or people of color. Cities like Atlanta, Chicago, Detroit, Durham, Miami and Orlando have populations where more than 40 percent are people of color. All of these percentages are going to keep increasing.
These individuals are at the forefront of economic growth. They are CEOs and on boards of directors. They're business owners, investors and community leaders. They're driving the diversity we all benefit from, and they're openly discussing topics like wage equality and inclusion. We are going to see more and more:
- Private equity firms founded by, funded by and led by people of color empowering more people of color.
- Successful female entrepreneurs investing in more women-owned businesses, replicating success for people like them.
- Community and philanthropic organizations built around a bottom-up approach, tackling problems personal to them.
The long-term and macroeconomic impact of this wealth transfer cannot be understated. Among all groups, the total U.S. buying power is $13.9 trillion and is estimated to reach $16.6 trillion in 2021—with minority groups controlling approximately 25 percent of that.3 Minorities will be perpetually fueling economic development.
The Plan to Succeed
From a total dollar amount, there is no roadmap for the wealth transfer journey we'll all be going on over the next 50 years as a society. Nearly 28 percent of American households have more than $100,000 in investible assets—with a combined total of more than $30 trillion.
And we are all going on this wealth transfer journey together. We believe those best equipped to advise are going to be those who understand the unique circumstances and nuances of multicultural families, of minorities, of women and of LGBTQ individuals. We have seen it work. Having someone across the table to help put these plans in place is a key ingredient to the successful wealth transfer recipe.
Business partners, advisory teams, CPAs, law firms, consulting firms, venture capitalists, investors—on and on—are going to need to be able to support first-time wealth transfer for a whole new, diverse generation. We believe advisor-led, digitally enabled partnerships will be what bring to the forefront the unique needs and challenges of each family. Their personal lives, their race, their sexual preference, their family dynamic are seamlessly integrated into their financial decisions.
Wealth transfer is one part of a much broader vision. These 50-year decisions are happening every day—for individuals, for families, for companies and for cultures. We know that the trajectory we put ourselves on now is going to have an impact 50 years from now and beyond. And making the right decision now is the only way to be at the forefront of the next milestones in American history.