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Not having such a strategy can leave advisers open to costs. What are the key steps to creating one?
A win/win scenario: planning an intergenerational wealth strategy
If advisers are to reach new customers, digitalisation needs to become a key feature of their strategy.
Is your practice digital ready?
With a wealth transfer incoming, financial advisers need to get acquainted with their client’s family.
Advisers, it’s time to meet the family
With the rising cost of living, financial advisers can help families navigate this difficult period.
Where can advisers provide value in volatile markets?
Are financial advisers prepared to advise a cohort of women who are outliving men?
Advisers at risk of losing the wealthiest cohort in Britain
Nearly half of Baby Boomers can afford to make gifts out of their wealth, with another 1 in 4 needing help to understand if they can or not.
The home of the family office
Connect with your clients' families and make existing relationships last generations
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For insight on how you can build relationships with your clients’ families, visit Quilter’s ‘home of the family office’ site
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Sustainable investing is a priority for younger generations that advisers need to stay at the forefront of
The next generation of sustainable investing
With mounting economic pressures there is a greater need to bridge the gifting gap between those who can afford to make lifetime gifts and those who do so
Bridging the ‘gifting gap’
Survey indicates issues with converting younger customers and points to how advisers are rising to the challenge
Making future generations 'advice ready'
Sizing up the risks
Having an intergenerational wealth strategy should be a win/win. For customers, we are set to see an unprecedented transfer of wealth across generations, at a time when the real cost of inheritance tax is rising. This needs to be planned.
Not having such a strategy leaves advice businesses open to significant costs. But, what are the key steps to creating one?
Of course, this can be easier said than done. Advisers tend to be older, and as a result find it easier to relate to older clients. By the same token, older members of the public are more likely to have wealth and to seek out advice.
However, that is not a reason to ignore the risks. Advisers without an intergenerational wealth strategy are leaving themselves open to one or more of the following:
In all these cases, the death of one or more clients could expose an adviser’s business to significant costs. Not only through the loss of existing business but through the cost of acquiring new clients.
Quilter has developed a simple 10-minute self-diagnostic exercise which can help highlight what intergenerational risks your business faces. Using our template, note down your top 10 clients based on the size of their wealth and the level of fees that they pay. Then for the four types of family member, indicate with a tick or a cross whether you have a business relationship with them.
This information should help you identify which of the three key risks your business might be facing.
Where a disproportionately high amount of the wealth is managed, and fees earned, with a select few key clients
When an adviser’s key clients are all in the later stages of their lives
When an adviser only has a relationship with their key client, rather than their wider family (e.g. spouse or children)
So what should your strategy look like?
Developing an intergenerational wealth strategy is a multi-layered process and will differ from adviser to adviser. But the typical strategy might heed the following advice:
But it’s also a win for advice businesses. If advisers can ensure they are reaching out to younger family members, then the death of a client won’t mean an abrupt loss of that business. Building a relationship with families across generations will safeguard and secure existing relationships as well as build new ones.
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Starting conversations with clients about pressures facing the rest of the family and how they can benefit from financial advice.
Discover more about family members
Your website design and social media activity could sway decision making and can be a great way to connect without having to meet face to face.
Have an up-to-date digital marketing footprint
The beneficiaries of an inheritance could have very different attitudes to investment than your current clients.
Understand how women’s investment attitudes differ
For most of their careers, financial advisers have relied on Baby Boomers (people born from 1946 to 1964) as their clients, but this could be changing. It is estimated that £1 trillion in wealth will be transferred from the Silent Generation and Baby Boomers to younger generations. With this shift come new faces and potential future clients. For advisers, this means, if they want to retain or grow their business in the long term, they will need to familiarise themselves with the rest of the family.
With a £1 trillion wealth transfer on the horizon, financial advisers need to get acquainted with all the generations in their client’s family and how their needs intertwine.
The ‘Silent Generation’ (people in their mid-seventies) will likely have already sought financial advice regarding their pension, inheritance planning and long-term care needs. The priorities of this generation may be to ensure their family have enough once they are gone.
The Silent Generation is one of the wealthier age groups. Two out of ten people over 65 years old have more than £1 million in wealth to share with the rest of their family. Yet, despite their wealth, not all have considered every avenue to transfer their funds to younger generations. For instance, only 35% of Baby Boomers have received a financial gift over £1,000. This indicates that there is still scope for advisers to educate older generations on the different ways to incorporate their families into their financial planning.
‘Millennials’, those currently aged 26-41, are facing serious difficulties in building wealth. Getting on the housing ladder is harder to do. House prices have increased by 259% over the past 30 years, while wages have only increased by 68%, according to ONS, Housing affordability in England and Wales.
Despite their financial difficulties, Millennials are also a group with the potential to generate significant revenue over their careers. With the appropriate financial advice and gifting strategy from family members, Millennials can look to accumulate wealth and become long-term clients of financial advisers.
Millennials and Generation Z (born between 1997-2012) are also more IT literate than older generations. Younger age groups expect more digital information to be available at their fingertips outside of work hours, which advisers should look to accommodate.
‘Baby Boomers’ (people aged from 58 - 76 in 2022) are the wealthiest of the age groups. Research shows that 3 in 10 people between 55 to 64 years old have a wealth of £1 million or more. Those in this group may be considering retirement and looking to avoid making the wrong decisions that will eat away at their pension. Baby Boomers may have also had their children recently leave home, giving scope for downsizing to a smaller property, releasing equity, and potentially paying off a mortgage.
A big concern for this age group is the financial future of their children. 59% are not confident that future generations will get on the housing ladder. Advisers can help clients create a strategy that supports their children as they progress through life.
As the intergenerational wealth transfer takes place, it will become increasingly difficult to separate the needs of the family and that of the client. Ageing is inevitable, and the sooner advisers get familiarised with different generations and build relationships with family members, the more likely they are to grow their practice in the long term.
1) Source: CEBR and Kings Court Trust, 2017
2022 has been an unprecedented year for households. Rising inflation, interest rates, and energy bills have eroded household incomes and made it challenging to accumulate wealth. During uncertain times, when households have less spare money to manage, it might suggest that financial advice is no longer necessary - but the reality couldn’t be further away from the truth.
Financial advice is often perceived to be most useful when managing sizeable wealth, but how can advisers prove their worth when household incomes are more constrained?
"Nearly a third of people are struggling mortgage and rent payments"
During tough economic climates, clients must get the most out of their money. According to our research, 93% of people’s savings since the pandemic are sitting in cash. There is a perception that cash is the safest way to protect their money, allowing them to wait until markets recover. Our research estimates that 6.7 million UK adults hold around £270 billion in cash ISAs, with 40% not knowing the interest rate paid on their account.
However, while holding some of one’s wealth in cash is sensible in case of emergencies, holding too much cash risks clients missing out on returns when markets rebound. Advisers can work with households to help achieve long term returns by allocating spare capital when markets are down, smoothing out returns, and creating a less volatile experience in markets for clients.
Where can advisers provide value to families in volatile markets?
Fighting the impact of inflation can also involve making smart use of tax reliefs and financial products to drive maximum efficiency for clients. For instance, continuous gift-giving versus gifting in lump sums can have tax benefits. Moreover, incorporating an overall family plan rather than a series of unconnected actions is likely to produce further efficiencies. Quilter offers a multi-family member discount, where clients and their family members benefit from a charging structure based on the value of all products held on the investment platform. As a result, the percentage charge of managing assets goes down as more family members are included and the sized of the capital grows.
While the cost-of-living crisis means that money is at a greater premium, it also means advice can have a more material impact on people’s lives. To financial advisers that see the opportunity to help individuals and families navigate this challenging period, the reward will be client trust that no short term wealth management can replicate.
Struggling with bills
The rising cost of living has inevitably made it more challenging for households to pay their bills. According to new data from the Office of National Statistics, nearly a third of people are struggling with mortgage and rent payments because of rising interest rates. This could drive clients to look for cheaper accommodation. However, this risks them being consumed in a wave of similarly positioned households. Selling in a flooded market could drive down the value of their property and rent in such a market might drive-up costs. Advisers can help clients by explaining their options and exploring ways of managing payments that can help avoid the need for knee-jerk reactions.
Similarly, individuals, especially among younger generations, might struggle to allocate money to their pension during the cost-of-living crisis. Advisers can help in these circumstances by helping create a plan to enable the continued contribution to pensions and safeguarding people’s long-term financial well-being. There is also scope for advisers to facilitate tax-efficient gift-giving from other family members to help safeguard the retirements of their children.
The estimated amount currently held in cash ISA's by 6.7 million UK adults
The new frontier
Going digital is a process that many financial advisers are already doing. The pandemic resulted in practices adopting hybrid services when face-to-face interactions weren’t possible. However, if advisers want to grow their practice as wealth passes to the next generation, their online experience needs to go further and become a key feature of their strategy.
If advisers are to reach new customers and satisfy their current ones, digitalisation needs to become a key feature of their business strategy.
Younger members of the family consume most of their content digitally and will expect information to be available at their fingertips. Widespread smartphone usage has made simple, streamlined services a market expectation and offering sleek online customer portals will be essential to reaching this new audience.
Equally, the adviser’s existing clients are likely to be more digitally savvy. The pandemic has led to a proliferation of hybrid advice being provided remotely via Zoom and other portals. Like younger generations, older clients are not relying solely on company literature and word-of-mouth in their decision-making. Website design and social media activity are increasingly influencing those looking for financial advice and, in some cases, replacing face-to-face interactions. This is reflected in an EY report showing that 25% of high-net-worth and 20% of very-high net-worth clients see digital tools as their first choice for engagement.
However, while moving an organisation’s operations and communications online can present opportunities for advisers, it also includes compliance risk. The Financial Conduct Authority has strict rules on what can be communicated, with advisers needing to be careful to avoid sharing misleading or unrealistic content, where the risk to clients isn’t appropriately flagged. Advisers need to keep records of their social media communication and activities since they could be considered correspondence with a client.
Furthermore, there is also cybersecurity risk. As with every organisation, there is a risk that a hacker could expose client information via corporate websites or social media accounts. Having strong passwords, strict privacy settings and a list of connections you are familiar with can help mitigate the risk. Letting clients know to share their confidential details via a phone call could also help prevent information from falling into the wrong hands.
Transforming the back-office
Implementing new technology and taking on new customers also have back-office implications. As more customer interactions go online, technology can automate and streamline processes and reduce the cost of taking on new clients. According to a Quilter survey, 51% of advisers spend most of their time on administration. Overcoming this burden can create more time to serve customers and drive business growth.
Organisations such as Quilter can help clients access their valuations quicker, update their details, top-up their ISA or CIA, and view their documentation online. Digitising these processes can free up advisers to focus on more profitable work and meaningful engagements with clients.
The way financial advice is delivered is changing. While clients of all ages will no doubt continue to value person-to-person interactions, more services will be expected to transition online. How effectively advisers navigate this change will determine their ability to retain clients over the long term and foster relationships with new ones.
1) Source: 2021 EY Global Wealth Research Report, p30
The percentage of advisers that spend most of their time on administration, according to a Quilter survey
While many financial advisers are preoccupied with intergenerational wealth transfers, they need to do more to provide services and advice that are tailored to women in their later years, or risk losing out on this growing wealth demographic.
In Britain, a large portion of wealth is held by the baby boomer generation. This is a generation where men have traditionally managed the finances and assets, even if women did more of the day-to-day budgeting and household spending.
By 2025, it is estimated that women will hold 60% of Britain’s wealth, having inherited most of it from their deceased spouses, according to the Centre for Economics and Business Research. If financial advisers have focused on fostering relationships with only the husband and if they have left the wife out of that trusting relationship, they should not expect fidelity or loyalty.
Are financial advisers prepared to advise a cohort of women who are outliving men and are left independently in control of their family’s wealth?
It is estimated that women will hold 60% of Britain’s wealth by 2025
After the death of a spouse, widows are often at their most vulnerable. Widows are often faced with wills, selling properties, managing investments, tax changes, and passing on assets. However, if they have never been involved in financial planning and if they do not have a relationship with the husband’s financial adviser, they may find it difficult to make decisions without a history of a trusting relationship.
A McKinsey & Company survey showed that while 61% of women share the same primary financial adviser as their partner, 40% said they would change their bank or adviser if they were separated from their partner, including through widowhood or divorce.
Advisers at risk of losing the wealthiest cohort in Britain
An agenda of her own
Widowhood may be the point in a woman’s life that she discovers her financial independence and confidence. Given that men and women have different attitudes towards and behaviours around money, investing, and wealth retention, it should come as no surprise that a spousal beneficiary of an inheritance would set new priorities and goals.
The WealthiHer network found that 79% of British women care about social investing, and 89% care about environmental investing; compared to 65% and 70% of men, respectively. Meanwhile, 65% of women say that ethical investments are a high priority and this jumps to 83% for women who have inherited their wealth.
Advisers could benefit from developing an understanding of women’s attitudes and behaviours around their family’s financial assets as well as fostering those trusting relationships well before the death of a woman’s spouse. According to a study by UBS, 76% of widowed or divorced women say that they wish they were more involved in long-term financial decisions while they were married, or when their spouse was alive.
Advisers should think about how to tailor their services to women’s particular needs at different stages in their life. Building expertise and services around retirement, divorce, career progression, family circumstances, funding children’s education, and widowhood should all be explored.
How wealth was acquired makes a big difference in priorities and goals. Beneficiaries of an inheritance prioritize family and security, and they are more likely than men to gift to children and grandchildren. On the other hand, women who are less wealthy place a greater focus on independence and freedom.
If advisers want to service a dynamic and rapidly growing wealth demographic, they should commit to building relationships with women well before they are the beneficiaries of an inheritance. To overlook retaining and engaging women, is to risk losing out on a major growth sector.
When clients eventually pass on their wealth, there is no guarantee that the investment attitudes of the beneficiaries will remain the same. This could be especially true of male clients passing on their wealth to their wives, children, or grandchildren that may want to pursue socially responsible investing.
According to EY research, 92% of Millennial clients have sustainability goals versus 66% from the Baby Boomer generation. Moreover, only 49% of Millennials feel their wealth manager understands their goals, compared to 57% from the Baby Boomer group.
To appeal to younger generations and the beneficiaries of their client’s wealth, advisers need to familiarise themselves with sustainable investing and the concerns surrounding the subject.
Sustainable investing is a priority for younger generations that advisers need to stay at the forefront of.
Just 1% of financial advisers and wealth managers “completely trust” sustainability claims from funds
One of the chief concerns around sustainable investing is greenwashing. Just 1% of financial advisers and wealth managers “completely trust” sustainability claims from funds, according to research from the Association of Investment Companies (AIC).
To avoid falling foul of greenwashing requires research to ensure fund managers invest responsibly and that their holdings drive material change. Research can also allow advisers to assess the social and governance impact too, which has gained greater attention in recent years.
Providers of responsible and sustainable solutions like Quilter can give clear objectives to help advisers understand and explain to clients why their investments are appropriate. Reporting is key to this dynamic as it can show how the funds are performing relative to their goals to ensure the investments remain suitable.
Striking a balance
Clients may want to invest sustainably, but also need to consider diversification. There is a balance to be struck between a client’s ESG preferences and the ability to diversify their investments. The greater their leaning towards sustainable investments, the more challenging it can become to offer a fully diversified portfolio. This has been witnessed in some recent market movements where some green funds found themselves exposed to particular sectors. It is important to understand how to resolve this if you are proposing solutions to clients.
While sustainability is not a new concern for advisers, its growing choice and complexity mean there is a great opportunity to provide additional value to clients. The risk of not preparing is that advisers will find the options they offer outdated and potentially out of touch with market expectations.
When introducing sustainable investment opportunities to a client’s beneficiaries, it is also vital to tackle any misconceptions and acknowledge how different sustainable funds can vary in their approach. Detailing the variables that could constitute environmental, social and governance investment to clients can help to determine which funds are appropriate to their investment views. For instance, responsible investing that screens out negative activities is a different approach to sustainable projects that invest in specific projects to drive change in specific areas like deforestation.
Similarly, it is worth emphasising that investing responsibly doesn’t always mean sacrificing financial returns. Sustainable funds, irrespective of ethics, could be the most appropriate product for long-term returns. Moreover, responsible investing is not all about directing your client to a specific sustainability-focused product. ESG can be baked into a firm’s standard investment process too and does not necessarily need to be reflected in a ‘green’ label.
of Millennial clients have sustainability goals versus 66% from the Baby Boomer generation
In a survey ran in partnership with Quilter Financial Planning and Professional Adviser, we found that half of advisers - some 50% - would like to grow their customer base over the next few years. 38% will be sustaining their existing level of business, and a further 11% will look to sell their business and exit the market.
Given the oft-reported average age of an adviser as rapidly approaching - or at - what most think of as ‘retirement age', the desire to sell up for some is unsurprising.
Survey indicates issues with converting younger customers and points to how advisers are rising to the challenge.
An adviser’s age isn't the only focus here - one study placed the age of a substantial chunk of advised clients as high as 70. And that matters; when it comes to calculating the value of an advice practise, the average age of the client base exerts a powerful influence on the valuation of the business. The younger the clients, the greater their need for ongoing advice, the greater the value of the practise over time. This is important not just for the 11% who are planning to sell up now, but also for every business owner who hopes one day to make an exit by selling - after all, it's not only client retirements that need to be planned for.
Winning younger customers
Just over a third of advisers think the best way to establish a younger client base is via an intergenerational wealth transfer strategy; effectively by following their clients' wealth as it changes hands at the point of inheritance. Just shy of a quarter look towards modernising their service to reflect the needs of younger customers.
This creates something of a structural tension; older clients tend to have more money, a correspondingly greater need for advice, and are quite simply more lucrative for the adviser (we delved into the maths of this recently). An individual adviser can only service so many clients - why focus on those who are less valuable when you have a ready pipeline of those who are, or you're already working at capacity?
Advisers need to keep an eye on this tension to avoid disappointment when the times comes to sell their business - when it will be too late to fix the problem. If you haven't factored in the age of your client base when calculating its value, then your sums may well be flawed.
The digitally native generations are far more likely to research investment solutions online than immediately seek advice, or likely to think they can manage themselves after a single advice session – a "tendency to pick your brains and then go online" – as one adviser told us.
Advisers would like to see more education around financial wellbeing and retirement planning at an early age - there is a strong consensus that an understanding of the financial system and retirement planning in general perhaps ought to be on the curriculum in schools and universities.
In the absence of that, many advisers see a value in educating younger customers themselves - positioning themselves to benefit from the changing client behaviours of those born into the online world. This means picking up on modern content and social marketing techniques, providing educational content online that helps customers understand issues and risks and can build trust in the value of your advice, and spreading the word using social media. Reflecting the behaviours of younger customers and swimming with the modern tide.
In doing so these advisers are gearing up for the next generations' desire for a ‘low touch’ service, replacing in-person with digital meetings, using online content to get customers up to speed before those meetings, and potentially finding that, whilst younger customers have less to spend, you can potentially serve more of them.
Which of the following options do you see as most important to attracting the younger generations to seek advice?
What is the main ambition for your advice business in the next 3-5 years?
Developing new social media strategies within our business
Creating more engaging content for digital channelssuch as our website
Tailoring our services to meet less complex needs and modest pots
Developing an inter-generational wealth strategy
Times are tough. With mounting pressures and difficulties facing society, there is a growing necessity for clients to share their wealth with younger family members in immediate need. According to Quilter's research, 59% of Baby Boomers are not confident that future generations will be able to get onto the housing ladder. However, even though they are concerned for the financial wellbeing of their children, there remains a ‘gifting gap’ between those who can afford to make lifetime gifts and those who do so.
With mounting economic pressures there is a greater need to bridge the gifting gap between those who can afford to make lifetime gifts and those who do so.
Gifting to younger generations can take many forms. Perhaps the client has adult children struggling to save for a deposit to buy their first home. Maybe they have older children facing a shortfall in their retirement provision. Or they could have grandchildren entering the world of work after university with a large amount of student debt.
Clients are also more likely to want to gift smaller sums. They may find it uncomfortable to relinquish control of a large amount of money, and should complications arise, this could undermine their trust in the adviser. Gifting smaller, more regular amounts can build trust with the adviser and puts clients in a more confident position to pass on substantial wealth.
Cash gifts are a popular option but paying into ISAs and pensions allows for tax efficiencies. View Quilter’s guide to see how regular gifting into a pension can build wealth over time. In the UK, you can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate, so there is every incentive to transfer wealth regularly.
For more substantial sums, clients might want to look towards setting up a trust. Trusts can leave control around the disbursement of the assets to the client while they are still alive or defer to a predetermined trustee. This can allow for a client’s capital to be accessed for specific reasons, such as education, or released at a fixed rate, preventing exploitation.
The benefits of transferring wealth regularly are not only financial. They can also help the emotional wellbeing of families. Finances can be a sensitive topic for many households, especially if different beneficiaries are looking to split a large inheritance.
Traditionally, most wealth transfers take the form of one-off inheritance following the death of a client who is unlikely to consider gifting. According to Quilter research, just 35% of Baby Boomers have received a financial gift of over £1,000 in their lifetime and lack awareness of the process.
In the worst-case scenarios, this can lead to excessive legal fees and capital being frozen for a period if there is a legal dispute. Starting conversations sooner and creating a long-term gifting strategy can give clients greater control over how their money is spent, improve the financial education of everyone involved and facilitate healthier conversations at an earlier stage.
The intergenerational wealth transfer not only represents an economic shift; it is a cultural one too. With ageing populations and longer life expectancies, transferring all of a client’s wealth at the point of their death is neither practical for their families nor tax efficient. With traditional attitudes to gifting very much still in place, it is the role of advisers to probe and educate their clients, showing that gifting and receiving financial advice are lifelong processes.
59% of Baby Boomers are not confident that future generations will be able to get onto the housing ladder