The Great Wealth Transfer and its impact on franchising
In the current climate of economic uncertainty and social change, it is sometimes difficult to see what lies ahead for younger investors and businesses. But many indicators point to a coming sea change in the distribution of wealth and business ownership.
A huge transfer of wealth, currently concentrated with the second largest generation, is about to take place. This “Great Wealth Transfer” will create a dramatic shift in the economic outlook of 140 million Americans in the Gen X and Millennial generations.
Who stands to gain the most from this economic shift? If you don’t have a rich uncle or a family business to take over, are you out of luck?
Not even close. Millions of Americans are poised to make economic gains, whether or not an inheritance is in their future.
We’ll get you up to speed on the roots and realities of the Great Wealth Transfer, and share how every young investor can build a strong financial future in the coming decades.
What is the Great Wealth Transfer?
It’s an overstatement to say that most wealth in the United States is inherited. While nearly half of ultra-high net worth (UHNW) individuals had a leg up from inherited wealth or affluent upbringing, over a quarter of them had zero help climbing to ultra-wealthy status according to an October 2022 study. Another finding of the study was that nearly 70 percent of multi-millionaires were over the age of 56.
These members of the Silent Generation (born between 1928 and 1945) and the Baby Boomers (born between 1946 and 1964) benefited greatly from post-war prosperity. Conservative taxation measures in the Reagan era and beyond helped them retain more of it. While many inherited at least some of their wealth, hard work and good planning also played a role.
What’s more, Baby Boomers came of age during an era of medical and personal health advancements, allowing them to stay in the job market in senior roles for longer. Some argue this combination of factors has created a logjam for younger workers: When older workers delay retirement, it creates a lack of mobility for the Gen X and Millennial employees who will assume those roles as part of the normal succession plan. For younger individuals who would take over the reins of family-run enterprises, those opportunities are similarly delayed.
All this wealth concentration must eventually go somewhere. With the Baby Boomers now entering their 70s and 80s, economists predict that by 2045, over $68 trillion will transfer ownership to the younger generations in an economic event dubbed “The Great Transfer.”
Franchising & the Great Wealth Transfer
Inheritance isn’t the only way wealth will change hands over the next 20 years. Since the 1970s, thousands of high-net-worth individuals have used franchises to build a stable income, create a long-term investment strategy, and diversify their total investment holdings.
With the average millionaire now entering retirement age, many will consider downsizing their franchise holdings to harvest equity from long-established, successful locations. The data show us the beginnings of this shift toward a younger ownership class. In 2017, most franchise owners were between 45 and 54 years old; more recently, the average age dipped to 44 years.
This presents an exciting opportunity for Gen X and Millennial investors to buy thriving franchise locations and begin to establish their own long-term financial security. Many younger entrepreneurs consider franchising an alternative to corporate careers, perhaps influenced by the Great Resignation.
At the same time, franchises with room to grow their networks are beginning to turn their attention to younger owner-operators with fresh energy and enthusiasm for the business model. These brands recognize that the new cohort of franchisees come to the opportunity with different priorities, values, and desires for their businesses.
Gen X & Millennial values
Changes in generational attitudes about work and wealth will drive shifts in the franchise model over the next one to two decades:
- These younger workforce members are in their prime, but they don’t approach career life like their predecessors. Millennials value work-life balance and contentment over compensation.
- These generations are the first to experience the direct impact of climate change in their lives and careers. Thus, many ground their investment decisions in factors like sustainability and environmental stewardship.
- Similarly, these generations are more socially aware, so social justice and diversity, equity, and inclusion (DEI) are integral to their partnership decisions.
- As tech-savvy, connected people, Gen X and Millennial investors likely prefer franchise brands with a strong digital presence and efficient, software-centered business models.
Franchise brands that understand these motivations and desires will have a leg up in attracting new, diverse owner-operators to their brands.
Franchises: Building the next generation of wealth
As with previous generations, Gen X and Millennials are set to create massive opportunities with franchising. Many will buy established brand locations or build new networks with up-and-coming franchise partners.
Franchising offers investors from every generation a range of benefits:
- Strong franchise brands prepare owner-operators for success with a tested product or service, built-in business systems, and established education for training staff and scaling operations.
- Franchising gives new business owners access to businesses with built-in brand recognition and customer loyalty.
- The franchise model gives owners access to semi-passive income, time freedom, and options for creating wealth on their terms.
- Unlike other alternative assets, franchise businesses are real assets. They benefit from equity appreciation and recession-resistant returns.
- Owning a franchise business diversifies your investment portfolio while providing higher, risk-adjusted returns.
Obstacles facing Millennials
The Baby Boomers aren’t the only reason wealth has been slower to transfer to younger generations. A mix of economic factors has made the road to wealth longer and more complicated for Millennials:
- Multiple wars and major events of the past two decades created less stability and higher costs just as the oldest Millennials entered adulthood and began to build careers and families.
- The student loan crisis reduced disposable income for millennials who entered college (whether they completed a degree or not). Collectively, this cohort shoulders over $1 billion in student debt. Many cannot find careers in their field of study lucrative enough to support loan payments.
- The Great Recession created economic burdens that still impact job availability and opportunities for advancement. Then, less than 15 years later, a second recession driven by COVID created more inflationary pressure on income, housing, and other essentials.
Gen X may also experience some of these impacts, but its outsized burden on the Millennials has led some to dub them The Unluckiest Generation. As a result, the Millennial generation has less money to invest, more anxiety and stress over financial conditions, and fewer opportunities
Building franchise wealth with a portfolio approach
As research shows, inherited money is not a prerequisite to building wealth and financial stability. The Great Wealth Transfer will provide savvy investors with numerous opportunities to create new income streams, establish their long-term financial plans, and contribute to the world according to their values and lifestyle. Today’s investors can access even more methods than their Baby Boomer and Silent Generation counterparts.
One such avenue is fractionalized franchise ownership. For investors who aren’t ready to commit to the large cash investment of starting and scaling a franchise location or network, FranShares provides all the benefits of franchising in a fully passive model.
Add franchise investing to your portfolio with FranShares
At FranShares, we take a unique fractionalized approach to franchise investing that allows people from all walks of life to own a portfolio of pre-vetted, fully managed franchises with great return potential. Also, our deep industry knowledge paired with no fees means that we help investors get maximum returns safely – so no one loses their shirt. Our mission is to help investors reap the benefits of franchise investing with a business model that offers:
- Passive income
Our best-in-class franchise management team ensures that our investors enjoy truly passive income through quarterly distributions without having to manage the franchise. In other words, we do the legwork while you enjoy the returns.
- Flexible capital commitment
We offer investors the opportunity to invest for as little as $500, although our model also appeals to ultra-high-net-worth investors. FranShares allows people of all income levels to become fractional franchise owners with the ability to invest the right amount of capital for their own personal circumstances.
- High-yield diversification
Franchises are real assets with little or no correlation to the overall stock market; thus, they act as a hedge against inflation and are not subject to the same level of volatility. Moreover, our fractionalized ownership approach allows investors to fully diversify their franchise holdings. Owning a portfolio of franchises across different geographies and industries creates an effective buffer against challenges that may shut down a single franchise or location, such as service franchises closing temporarily during pandemic lockdowns.
- Low risk
To minimize volatility and give our investors peace of mind, FranShares only invests in recession-resistant franchises with a track record of success. We perform all due diligence and thoroughly vet each franchise partner for strong brand recognition and market positioning.
As previously mentioned, the franchise industry is regulated by the FTC; and as a registered investment vehicle, FranShares is also regulated by the SEC. The FTC requires full disclosure of each franchisee’s background, financials, and performance. In addition, we provide our investors with reporting and regulatory compliance documentation above and beyond what federal regulators require.
Get started with FranShares
If you’re an investor who is looking to incorporate franchises into your portfolio, investing fractionally with FranShares offers high earning potential and diversification in a completely passive investment model. To learn more about FranShares and this unique opportunity, speak to our Investor Relations team.