As Baby Boomers and older generations pass their wealth to heirs, spouses and charities over the next decade, we will see the largest shift of assets ever recorded, reshaping who controls investment capital. Estimated at $124 trillion through 2048, this “Great Wealth Transfer” will create significant opportunities and challenges for Gen X, Millennials and especially women, who are poised to become chief stewards of this wealth.¹

As this transfer begins, the financial services industry is facing a looming shortage of advisors because 100,000 financial professionals are projected to retire by 2034. Many firms lack clear succession plans for these retiring advisors, putting an estimated $10.4 trillion in assets at risk of attrition or mismanagement. Meanwhile, new advisor recruitment has slowed, and the pool of young, entry-level advisors has shrunk down by 60% among those under age 25 since 2022.²

Despite growing interest in self-directed investing, the next generation shows a strong desire for professional guidance. A Wall Street Journal Intelligence Study finds that 80% of Millennials plan to use a financial advisor after receiving significant wealth, and nearly half expect to choose a new advisor once they inherit assets. Women, who are likely to outlive men and gain greater financial control, overwhelmingly want advisors who take a holistic view of life goals alongside traditional financial planning. Without proactive client engagement efforts, firms may risk losing long-held assets as heirs seek personalized, modern advice.

First Eagle Academy is dedicated to helping advisors thrive through these unprecedented opportunities and challenges. Through interactive seminars and workshops and practical tools, the Academy helps advisors not only attract and retain generations of clients but also ensure smooth transitions and holistic financial guidance for families during times of change.

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Over the past several years, small cap equities have dealt with a policy backdrop defined by aggressive rate hikes and tightening financial conditions. Historically, small cap companies—which are more reliant on floating-rate or shorter-term debt and domestically oriented—have tended to lag in high-rate environments but outperform once borrowing costs decline.¹

Historical data show that when interest rates are at or below 4%, small cap value stocks outperform large caps by an average of just over 2% annually. In contrast, when rates rise above 4%, we see small cap lag by over 6% annually.²

This dynamic underscores how rate regimes can shape performance across the equity landscape. Small cap companies, which tend to be more leveraged and rely more heavily on short-term borrowing, often face greater pressure when financing costs rise. Conversely, when rates stabilize or begin to decline, improved access to capital and stronger operating leverage can fuel meaningful recovery. 

At the end of the third quarter, valuations across the small-cap universe appear compelling relative to historical averages. The Russell 2000 Value Index traded well below historical average with a forward price-to-earnings (P/E) ratio of roughly 14x, compared to roughly 25x for the S&P 500 Index.³ These lower valuations may offer a wider margin of safety should monetary policy continue to ease further.⁴

As the Federal Reserve has begun to cut rates, with the potential for further cuts, easing credit conditions and stronger domestic demand could benefit small caps. The combination of discounted valuations and historical interest rate sensitivity highlights the importance of maintaining selective exposure to small cap equities within a diversified portfolio.