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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
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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
of 18–24-year-olds use online digital advice tools like Moneyfarm, compared to only 5% of those aged 55 and above
18%
The home of the family office
Connect with your clients' families and make existing relationships last generations
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Further reading
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'
What regulatory steps could make financial advice more accessible?
Financial planning for the future
Experts discuss the risk and opportunities advisers face with pension death benefits.
Webinar – Pension Death Benefits
Pension experts discuss how to determine the best wealth transfer options for clients.
Webinar: Dealing with death and your future clients
To bring more young people into financial planning there’s a need to educate them on the rewarding aspects of the profession
Recruiting the next generation of advisers
With the emergence of online tools, where are people getting their financial information from?
The information landscape of financial planning
How can financial advisers help women bridge the gender pension gap?
Closing the gender pension gap
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Navigating changes in UK tax can be complicated and provides an opportunity for financial advisers to share their expertise
Financial advisers and mitigating the impact of UK tax changes
Advisers can help their clients tackle the tax, technical and legislative challenges in transferring pension wealth
Cascading pension wealth: Death benefit planning
Financial advisers Jason Betteridge and Matthew Spence explore how sustainability feeds into their increasingly lifestyle orientated conversations with clients
Are advisers becoming lifestyle coaches?
Maximising a beneficiary’s inheritance could be the single biggest impact an adviser could have for their client
Solving the inheritance tax problem
Navigating the legal ownership of wealth can pose many pitfalls to the beneficiaries
Avoid wealth transfer pitfalls
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.
48%
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of women valued trust as important to their financial adviser, compared to 47% of men
57%
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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
Concentration risk
When an adviser’s key clients are all in the later stages of their lives
Mortality risk
When an adviser only has a relationship with their key client, rather than their wider family (e.g. spouse or children)
Retention risk
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
Learn more
Silent Generation
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
‘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
‘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
1) Source: CEBR and Kings Court Trust, 2017
Cash Investments/Savings
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?
Finding efficiencies
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
£270bn
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.
Navigating pitfalls
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
51%
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.
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.
Tackling greenwashing
Myth busting
of Millennial clients have sustainability goals versus 66% from the Baby Boomer generation
92%
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
8%
9%
27%
22%
Gifting strategies
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.
Family relations
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
How has sustainability impacted your business strategy and interaction with clients?
Financial advisers Jason Betteridge and Matthew Spence from Sutherland Independent Ltd, explore how sustainability feeds into their increasingly lifestyle orientated conversations with clients.
Betteridge: I think platforms provide the ability for you to cater for all different levels. Whether it is grandparents with pensions, unit trusts and/or ISAs; your middle tier which is your parents; and then your junior ISAs with grandchildren and children. That way you're encapsulating them across the whole board.
Do sustainable investments fit into your client’s strategy for life?
Betteridge: We talk to clients about sustainability with a view that at the end of the day when we invest their money, we'll take that into consideration. As part of our Model Portfolio Service, we have exposure to 35% of assets in sustainable funds and from that point of view we feel we are offering the client appropriate options. However, it's not utopia on the grounds that many clients are saying that with a market that's been bad like it has been, they are more concerned about a positive return. The timing is not perfect because sustainable funds are not all where we need them to be in terms of performance.
Spence: We see a real spectrum of circumstances. We have had conversations where the client is enthusiastic around sustainability and renewable energy and then they go buy themselves a Porsche 911 or jump on a plane to fly around the world. And you think, hang on a minute, where does the investment side of things match with what you're trying to do with your life? And vice versa, you have individuals who choose not to have sustainable or ethical portfolios and then they do their own bit with solar panels on the roof and driving electric. And that's perfectly fine, but it does bring a web of discussion to really try and work out what is the most suitable approach for them to take.
Spence: The conversation still comes down to, are you willing to go down this environmental route, for it may not to do as well as conventional investments? Is that a driver and are you quite happy to sit through the difficult times because there will be some positive times? If you do want your money to do good, you need to be prepared for the slightly higher volatility.
How do you look to offer sustainability options across different generations?
Spence: When it comes to sustainability adoption, it's up to us to probe. If someone says I wouldn't mind doing some, well what do you mean by “some”? What does “some” look like? Are you willing to take the extra risk? It's about understanding what the trade-off is. It is about education, finding out what the client’s view is and put forward the best solution.
We see the trend moving away from advisers being an investment expert to advisers being a financial coach, a life coach, somebody to challenge, somebody to encourage, along with all the cash flow modelling aspects to give people financial freedom. I think you get far more engagement with the client that way because you understand what the money is doing for them.
Betteridge: If you think about it, every time you sit down with a client, you could either have a good or a bad meeting based on whether their portfolio is up or down. If your business was totally focussed on investment returns, imagine your meetings in the last year - down 10%, 13% for example. However, if you've got lifestyle financial planning where you can look at the client and have a real eye on what they've currently got, if they are still on track to have money for the rest of their life, and use things like cash flow modelling, then that client walks out of that meeting with a completely different experience. Spence: It's a case of saying we can't control this bit, but we've tested it all, we've shown that we can lose this amount and not run out of money. This year it's 10%, next year you might be up 20% but that's not really going to change things either. Just get on with your life. Betteridge: If we do the job properly like Matt was saying, it's all about them, not their money and with sustainable investing that is no different.
What do you see as the drivers behind giving lifestyle advice?
Jason Betteridge
Matthew Spence
Do ethical investments fit into your client’s strategy for life?
ISAs
Transferring wealth between generations isn’t only an emotional process, it poses complex legal and financial considerations too. While being tax-efficient is an important goal for clients, the control and timing of a wealth transfer can have a significant impact too. There are decisions to be made on how the legal ownership of wealth can change and whether it can remain invested depending on the investment vehicle it is in. The complexity surrounding the inheritance poses several pitfalls. For instance, what if a person’s assets are forced to be sold in an unfavourable economic climate where markets are down?
Navigating the legal ownership of wealth can pose many pitfalls to the beneficiaries.
ISAs, as the name suggests are held individually, for clients that are married or in a civil partnership they can prove to be an efficient vehicle for inheritance. Any transfer between UK domicile spouses is exempt for inheritance tax and the surviving spouse is granted an Additional permitted Subscription (APS) ISA allowance, which allows them to contribute to their own ISA up to the value of the deceased’s ISA at the date of death or when it is closed. If the surviving spouse inherited the ISA, they could fund their APS by simply moving the funds to their own without selling them.
Pensions
Wealth within a pension can potentially remain in a pension pot upon the death of a client. If the client has a surviving dependent such as a spouse or a child under the age of 23, the pension pot could be passed on to a dependant for them to hold in their own right.
According to Quilter research, 80% of participants said they would consult an adviser regarding tax planning and inheritance, with all age groups above the age of 25 showing a similar degree of interest. Navigating the legal ownership of inheritance is clearly an area where the sooner advisers can build a relationship with the beneficiaries to avoid inheritance pitfalls, the better.
However, if the client wanted someone other than a dependant to have the ability to own the pension pot, then they would need to complete an ‘expression of wishes’. Without an ‘expression of wishes’, the scheme administrator has less flexibility in their discretion and the client’s wishes might not be met. Without prior planning with clients and their beneficiaries there is the risk that long-term pension planning and valuable tax advantages could be lost.
of participants said they would consult an adviser regarding tax planning and inheritance.
80%
However, when the ISA is inherited by someone other than a spouse or civil partner, no APS ISA allowance applies, and they cannot move the funds over. The ISA value would be included in the deceased’s estate for IHT purposes. The funds in the ISA could be sold or transferred to a general investment account. This means if the beneficiaries of an ISA are not the client’s spouse, consulting a financial adviser and planning earlier would be beneficial to avoid the immediate sale of assets in a non-efficient manner.
General investment accounts
General investment accounts, are generally accounts which are held on ‘platforms’ which provide a facility to buy and sell different funds, shares etc. If held individually, even on death it can remain invested following the death of a client.
Although, the value would form part of the deceases estate for IHT purposes, the value of the investments making up the account would be ‘rebased’ at the date of the death of the client. If the investments were held in a joint name, the surviving investor will become the sole legal owner. While the survivor may still pay tax (income tax on dividends and CGT on disposals), control and timing can play a key role in ensuring the best outcomes. If the account is held in the client’s name only, the investments will remain invested and held by the legal representatives of the estate. They are then distributed in accordance with the deceased’s will. If clients want to avoid selling their wealth, potentially due to the risk of selling in a bear market, advisers can advise that the account is left to the beneficiaries – allowing them to then control when investments are encashed.
Lastly, if a bond was owned solely by your client and they were the only life assured, then upon their death the bond will cease, an income tax charge may arise, and the proceeds will be distributed in accordance with the deceased’s will, unless the bond is held in trust which many are. Advisers can help plan with their clients to ensure that the instructions are as clear, that multiple lives are assured and trusts are used so they are in control when the bond comes to an end. While it may appear minor to clarify an individual’s details around wealth transfer, the risk of not doing so could be emotional and financial stress. The sooner advisers help their clients clarify details around their beneficiaries and update them over the course of their life, the better the outcome for all parties involved.
Single premium investment bonds
Wealth within a pension can potentially remain invested upon the death of a client. If the client has a surviving dependent such as a spouse or a child under the age of 23, the pension could remain invested, with ownership still passing on to the dependant.
ISAs for clients that are married or in a civil partnership can prove to be an efficient vehicle for inheritance. The surviving spouse is granted an Additional permitted Subscription (APS) ISA allowance, which allows them to contribute to their own ISA up to the value of the deceased’s ISA at the date of death or when it is closed. If the surviving spouse inherited the ISA, they could fund their APS by simply moving the funds to their own without selling them.
Transferring wealth between generations isn’t only an emotional process, it poses complex legal and financial considerations too. There are decisions to be made on how the legal ownership of wealth can change and whether it can remain invested depending on the investment vehicle it is in. The complexity surrounding the inheritance poses several pitfalls. For instance, what if a person’s assets are forced to be sold in an unfavourable economic climate where markets are down?
Picking the right strategy
Receiving or passing on inheritance is a huge cause of concern for clients, and it is where financial advisers can prove their worth. Without financial advice, inheritance tax can prove costly. The nil-rate band tax in the UK is £325,000, with any assets above this threshold being taxed at a rate of 40%. Depending on the wealth of the household, this could potentially lead to HMRC receiving several hundred thousand pounds in inheritance tax. According to a YouGov survey from November 2022, inheritance planning is the biggest driver for someone to seek financial advice. 80% of people in the survey stated they would seek financial advice when inheritance planning. Moreover, the survey highlights that 73% of people are most concerned about the right person receiving the money.
Maximising a beneficiary’s inheritance could be the single biggest impact an adviser could have for their client.
Different clients require different strategies. For instance, utilising annual allowances and other reliefs such as gifting strategies may help a client ensure their money benefits the whole family and pay for expenses such as holidays or school tuition. However, these strategies also lack a degree control around how the money is spent and may not account for the client’s retirement and long-term care. If clients want to make gifts but still want some control, trusts are an answer, and there are many to choose from. For instance, a settlor excluded discretionary trust allows the settlor to make an outright gift. Flexibility and control is achieved for the trustees to distribute or loan capital to beneficiaries at any time in the future. This type of trust is often used to provide funds for school fees or pass funds to children or grandchildren when they are mature enough to deal with the inheritance.
A lifestyle trust has similar benefits to a loan trust but has the benefit of giving the client the option to forgo or defer access to capital payments, depending on their needs. As a result, a lifestyle trust is suitable for inheritance tax planning and distributing funds to beneficiaries. However, entitlements to the capital cannot be brought forward, meaning it is not suitable for clients who want immediate access to a large amount of the trust’s capital.
80% of people in the survey stated they would seek financial advice when inheritance planning
For settlors that aren’t ready to give up access to their capital, but would like to start UK inheritance tax planning, a loan trust could be an effective solution. A loan trust would allow a client to request repayment of the interest free loan they have made to the trustees – providing the settlor/lender with the ability to maintain access to funds (which are equal to but not more than the loan amount) to top up their retirement income or long-term care needs. Since the capital is invested, there is a possibility it could grow in value, with the added value not factoring into inheritance tax.
Financial advisers not only have the tools to ensure that the right person is gifted money but also that it is done in a tax-efficient manner. Yet, while advisers have many tools at their disposal, it is important to know which options are most appropriate.
These examples illustrate that there are solutions for every client’s circumstance. There are trade-offs to be made with access versus inheritance tax efficiency as well as whether the settlor wishes to retain the rights to withdrawal or are happy to gift away their capital. Whatever a client decides, the message is clear; the sooner you get to know your client, their needs, and their relationship to their beneficiaries, the better the outcomes will be.
A simplified regime
According to the FCA, 8.6 million people in the UK were holding more than £10,000 in investable assets in cash in 2021. This is despite the fact that we have more access to a wide range of investment options than ever before. A simplified financial advice regime that goes beyond just guidance could help young people and families make informed decisions about their investments and build a stronger financial foundation for the future.
In addition to helping young people and families manage their investments, a simplified financial advice regime could also be extended to other areas of financial planning, such as retirement and protection. Many people, especially young people, may not fully appreciate the importance of saving for retirement or protecting themselves and their families until it's too late. A simplified advice process could help to shed light on these often-overlooked areas of financial planning and encourage more people to take proactive steps to secure their financial futures.
It's worth considering that financial advice isn't just about managing investments. It can also help people make informed decisions about their overall financial well-being, including things like budgeting, debt management, and estate planning. A simplified financial advice regime could help young people and families get the support they need to make these important decisions and take control of their financial futures.
8.6 million people in the UK were holding more than £10,000 in investable assets in cash in 2021
Overall, the FCA's proposals are a promising step towards making financial advice more accessible and affordable for young people and families. While full-service holistic financial advice may not be the answer for everyone, a simplified and cost-effective regime could have a dramatic impact on the financial resilience of young people and families across the country.
Financial advice can be a crucial resource for young people and families trying to build wealth and secure their financial futures. Unfortunately, many of these individuals may feel that they cannot afford full-service financial advice or are overwhelmed by the range of options available to them. The Financial Conduct Authority's (FCA) plans to make financial advice more accessible and help people feel more confident about investing are a welcome step towards addressing these issues.
It's important to note that not everyone needs full-service financial advice, especially in the early stages of building wealth and managing relatively simple financial affairs. However, even those with relatively straightforward financial needs may be priced out of the current financial advice regime due to its rigorous regulation and requirements. A simplified advice process could help to bridge this "advice gap" and ensure that young people and families have access to the support they need to make informed financial decisions.
Tax
Death benefit planning is an essential part of financial planning that often gets overlooked. Cascading pension wealth can play a significant role in transferring wealth efficiently to a client’s loved ones, yet many people are not taking advantage of this tool. In the last four years Quilter has seen that over 1 in 5 pension death claims were delayed or the option for the pension money to remain invested lost because of no ‘expression of wish’. Advisers can play an important role in ensuring clients make nominations on an expression of wish form to make sure the pensions are passed on, but there are other areas where they can assist too.
Advisers can help their clients tackle the tax, technical and legislative challenges in transferring pension wealth.
One of the most significant challenges of passing on pension benefits is the tax implications. Depending on the type of pension and the age of the individual at the time of death, the amount of tax paid by heirs can vary significantly. For instance, if the pension owner dies before the age of 75, their heirs can receive the pension benefits tax-free as a lump sum death benefit (currently within the lifetime allowance). However, if the owner dies after the age of 75, the benefits may be subject to income tax. Advisers can help their clients plan for tax-efficient pension wealth transfer by working with them to develop a comprehensive wealth transfer plan.
Technicalities
Another challenge of cascading pension wealth is the complex regulations surrounding pensions. The rules governing pensions can include a lot of technical terms, making it challenging for individuals to plan for their deaths. The differences between a beneficiary, dependant, nominee and successor can have significant implications for how a pension could be passed on. For instance, where an individual who is a successor to a member is also a dependant of the member, in their capacity of successor they are not treated as a dependant. This means that the nomination by the deceased dependant, nominee or successor will be key to enable the future cascading of wealth. Advisers can explain the implication of these terms to their clients and make sure they tailor their plan accordingly.
The differences between a beneficiary, dependant, nominee and successor can have significant implications for how a pension could be passed on. For instance, where an individual who is a successor to a member is also a dependant of the member, in their capacity of successor they are not treated as a dependant. This means that the nomination by the deceased dependant, nominee or successor will be key to enable the future cascading of wealth. Advisers can explain the implication of these terms to their clients and make sure they tailor their plan accordingly.
pension death claims, in the last four years, were delayed because of no 'expression of wish'
1 in 5
Legislative changes
Changes in legislation can also pose difficulties to individuals. Pension regulations and tax laws are subject to change, and it can be demanding for individuals to keep updated and understand how the changes affect their portfolios. For instance, since 2015 individuals have been able to access their pensions more flexibly and are also able to pass on savings to beneficiaries upon death before the age of 75 tax-free. The practical application of inheritance tax rules has also changed meaning individuals can pass their pension savings tax-free in a wider range of circumstances outside of their estate than has been the case historically. Having a financial adviser that is aware of rule changes, both big and small, and explain them clearly will bring a lot of additional value to their clients. Cascading pension wealth is a huge opportunity for both clients and financial advisers. There is a lot of efficiency to be found and expertise for advisers to showcase. Whether it is educating people on technical details or ensuring there are no delays to the benefits process, advisers can share their knowledge and foster client loyalty that could span generations.
Another challenge of cascading pension wealth is the complex regulations surrounding pensions. The rules governing pensions can include a lot of technical terms, making it challenging for individuals to plan for their deaths.
One of the most significant challenges of passing on pension benefits is the tax implications. Depending on the type of pension and the age of the individual at the time of death, the amount of tax paid by heirs can vary significantly.
Capital Gains Tax
Wealth accumulation is only getting more difficult. In a bid to raise funds the UK government has either frozen or even reduced most tax allowances. For individuals with sizeable assets this may mean they need to consult a financial adviser to better understand how they can optimise their positions.
Navigating changes in UK tax can be complicated and provides an opportunity for financial advisers to share their expertise.
Capital gains tax (CGT) is a tax levied on profits earned from the sale of an asset. The UK government for the tax year 2023/24 is reducing the annual exemption, with the amounts falling to £6,000 and £3,000 for trusts. For the tax year 2024/25 the exemption is expected to fall further to £3,000 and £1,500 for trusts.
The tax changes have the potential to have a significant impact on the intergenerational wealth transfer and one’s taxable assets when the pass away. Upon the sale of a property that has grown in value, beneficiaries will reduce tax allowances, meaning a higher proportion of the property gains could be taxed.
Individuals particularly affected by the changes might want to start considering moving their investments to tax-efficient vehicles such as ISAs or a personal pension. Moreover, transferring assets to a spouse could help bring down the amount of CGT bill as every individual has their own allowance. With a variety of potential complex options at people’s disposal it is a great opportunity for advisers to be consulted and offer value where they can.
people could be affected by the government's decision to reduce the dividend allowance to £1,000 from April 2023
3,235,000
The reduced exemptions mean that around 260,000 individuals and trusts will be brought in the scope of CGT for the first-time by 2024/2025. Over the next five years the UK government is expected to raise £1.6 billion because of these reductions in the annual exemption.
Dividend Allowance
The government has also planned cuts to the yearly dividend allowance. 3,235,000 people could be affected by the government’s decision to reduce the dividend allowance to £1,000 from April 2023. This amount is planned to half again from April 2024, to £500 per annum. The government is expected to bring in £3 billion over the next five years with this policy change.
For investors that derive a significant income from dividends, the reduced allowance can be expected to increase their costs. Financial advisers can assist by recommending investing options that fulfil a client’s objectives beyond using dividends. For instance, withdrawals from bonds may fall within an individuals personal savings allowance. Similarly, investors might be interested in increasing their pension or ISA contributions.
The UK’s decision to freeze the nil tax band as part of its fiscal policy will also increase the financial burden on individuals. By not increasing the threshold in line with inflation, more individuals will be in the scope of the tax band. Not only will the tax freeze make the intergenerational wealth transfer more complex, it will make financial advice more valuable. Similar to the previous examples, maximising tax efficiency through the use of ISAs, pensions and trusts will become a necessity for more people brought into the nil tax band over the coming years. While tax increases won’t appear like a positive, it does create an opportunity for financial advisers. With greater complexity in managing wealth, there is a greater necessity for expertise. Financial advisers are perfectly placed to help individuals navigate the UK tax changes to ensure their client’s assets are working as efficiently as possible.
260,000 individuals and trusts will be brought in the scope of captial gains tax for the first time by 2024/2025
Tax Freeze
An information gap
Financial advice is a critical aspect of financial planning, but the industry has historically been viewed as one for those approaching retirement age. This perception has made it difficult to attract young talent, with the average age of financial planners being 58, with at least 20% of them expected to retire in the next five years. For the future of the profession, it is essential to address misconceptions on both sides that hinder progress and the recruitment of young advisers.
To bring more young people into financial planning there’s a need to educate them on the rewarding aspects of the profession.
To find good quality candidates it’s important to highlight the many selling points of the financial planning profession.
For young people, the lack of information around what a financial adviser is has been a significant barrier to entry. There is a tendency to think of accountancy and legal roles as professions, but financial planning is not often considered as an alternative. One of the biggest misconceptions is that advising is all about numbers and math skills. While financial advisers certainly need to have a strong understanding of financial concepts and be able to perform calculations, there is much more to the job than just crunching numbers. Financial advisers must also be able to communicate complex ideas in a way that clients can understand, build relationships, and help guide clients through major life decisions.
Recruitment
When recruiting young financial advisers, it is essential to look for certain qualities. Being a ‘people person’ is key to building relationships and gaining clients' trust. It is also important to train hard to get the necessary qualifications, have resilience, and be able to explain technical ideas in a way that people can understand. To find the right candidates recruiting needs to start young, targeting those who are in their late teens/early twenties and weighing up their futures. Financial planning is a great profession that could appeal to many individuals who might not want to go to university. To find good quality candidates it’s important to highlight the many selling points of the financial planning profession. The flexibility the job offers can allow men and women to balance work and family life. Additionally, the profession is not necessarily a lonely one, as there is usually a team behind you, including colleagues, accountants, solicitors, and clients.
On the client side, young people have a lot to offer, but there is a need to reinforce this fact. Young advisers might not have the same life experience, but they can bring fresh ideas and technical abilities. Clients are more likely to reach out to those they can relate with, and as the intergenerational wealth transfer moves assets to younger generations, this will become a key factor. Financial advice is needed by everyone, regardless of age, gender, or profession. However, younger generations and female clients are often left out. Making advice more accessible for these groups it is essential, and young people would be great at helping to bridge this gap as they might find themselves being able to relate better with these different demographics.
of financial planners expected to retire in the next five years
20%
Looking to the future
The financial planning industry has not been the quickest at adopting new technology, but it has come a long way in the past few years, thanks in part to the younger generation pushing for change. Young planners are tech-savvy, and their knowledge of technology can help the industry keep up with the times. This could include everything from digital tools for budgeting and tracking expenses, to robo-advisers that use algorithms to make investment recommendations. There is also the important aspect that a financial advisers should be there for their clients for a lifetime. Advisers may wish to sell their business and retire or reduce their workload as they get older. In order to form deep connections with clients that can last decades, recruiting younger advisers will be essential. To learn more, listen to Quilter’s podcast titled, ‘Why you should be recruiting more young Financial Advisers’
The gender pension gap remains a significant issue in the UK. The gap stands at 40.5% for 2021, representing an average annual £7,100 shortfall for women’s’ pensions compared to men’s and representing no improvement from recent years.
This is due to various factors such as women taking time out of work to care for children or elderly relatives, working part-time, and being paid less than men in many industries. However, financial advisers can play a crucial role in helping to bridge this gap and ensure that women have the financial security they need in retirement. According to a Quilter survey conducted by YouGov, almost half of women respondents who said they didn't have a financial adviser thought that they couldn't afford one. This is a worrying statistic and highlights the need for financial advisers to ensure that their services are accessible and affordable. There are many different types of financial advisers available, from independent advisers to those affiliated with specific institutions, and it's important for women to explore all options to find the best fit for their needs and budget.
Another important consideration for women when choosing a financial adviser is trust. The Quilter survey found that 57% of women valued trust as important to their financial adviser, compared to 47% of men. This is likely because women may feel more vulnerable when it comes to their finances, especially if they have experienced financial discrimination in the past. A good financial adviser will take the time to build a relationship with their clients, listening to their concerns and working with them to create a financial plan that meets their needs.
One of the reasons why women may feel that they don't need a financial adviser is because they have different financial priorities. For example, only 16% of women in the survey said that growing savings (e.g., cash, cash ISAs etc) was a priority for them, compared to 25% for men. This could be because women are more focused on day-to-day expenses and may feel that they don't have enough money left over to save for the future. However, a financial adviser can help to create a budget and savings plan that considers all a woman's expenses and income, helping her to save for retirement without sacrificing her current lifestyle.
In addition to trust, many women also value a tailored approach from their adviser. The Quilter survey found that 44% of women said a one-size-does-not-fit-all approach is important to their financial adviser, compared to only 36% for men. This is likely because women's financial needs can be more complex than men's, due to factors such as lower salaries, career breaks, and longer life expectancies. A good financial adviser will take the time to understand each client's unique situation and create a customised plan that considers their individual needs and goals. It's important to note that many women may also feel that they need to watch their spending closely due to rising costs in the UK. The survey found that 22% of women felt that they may need to ask for financial help if economic conditions don't change, compared to only 15% for men. This highlights the need for financial advisers to provide ongoing support and guidance to their clients and helping them to navigate changing economic conditions.
1) Source: Prospect annual Gender Pension Gap report 2022
From the few points highlighted, it is clear that financial advisers can play a meaningful role in tailoring their services to women. By offering accessible services, and customised financial plans with ongoing support, advisers can know that they are helping the industry take a step in the right direction, even if the road to bridging the gender pensions gap is still a very long one.
Word of mouth
Financial planning is crucial for everyone, regardless of their age. However, the way people plan for their financial future differs significantly across different age groups. There has been a growing trend in the use of online tools that have significant implications for financial advisers who need to adapt their services to meet the changing needs of clients.
In Quilter research conducted by YouGov, younger age groups appear more likely to look to their family for help with financial planning than older age groups. 39% of 18–24-year-olds and 44% of 25–34-year-olds said they would turn to their family while only 10% of respondents aged 55+ said they would do the same. In addition, 26% of 18–24-year-olds say they look to their friends for help with financial planning. This contrasts with only 15% of 45–54-year-olds and 13% of 55+ year-olds. This highlights the importance of social networks for younger individuals when it comes to financial planning and utilising information that is cheap and accessible. This is supported by the fact that 53% of respondents aged 25-34 said they did not use a financial adviser due to the cost, in contrast to only 32% among those aged above 55.
Changing client needs
What does this mean for financial advisers? Firstly, it is clear that advisers need to adapt their services to meet the changing needs of their clients. Younger individuals are more likely to seek help from family and friends and use online tools, which means advisers need to find new ways to connect with these clients. This could include bringing younger members of the family into client conversations at an earlier stage. Secondly, advisers need to recognise the importance of going digital and the personalities of online experts. As more individuals go online advisers need to ensure they are up to date with the latest online tools and resources. This will help them better serve their clients and provide a more personalised service than what younger generations can find online. It is worth recognising the limitations of online resources and emphasising the unique benefits of having a human-to-human interaction with a financial adviser.
For these reasons, the use of online digital advice is growing in popularity, particularly among younger age groups. 18% of 18–24-year-olds use online digital advice tools like Moneyfarm, compared to only 5% of those aged 55 and above. This trend is likely to continue as younger individuals become more comfortable with technology and as more online tools become available. The survey also suggests that younger individuals are more likely to seek help from online experts like Martin Lewis. 43% of 25–34-year-olds in the survey said they would look to online/tv experts for help with financial planning, in contrast to only 32% of those aged 55 and above.
Ultimately, individuals of all ages have financial goals, and the sooner financial advisers tailor their services to these different age groups, the stronger their business will be in the long term. The risk of not doing so is that when younger age groups get older, they might not appreciate the necessity for a financial adviser. To learn more, watch Quilter’s ‘Helping advisers communicate with different generations’ webinar with special guest expert Dr Eliza Filby here
There are often knowledge gaps when it comes to inheritance tax planning. People often think that just because they don’t have hundreds of thousands of pounds in the bank that inheritance tax doesn’t apply to them. But with ever-increasing house prices that increase the value of people’s assets, more and more people will be impacted by the tax. Moreover, there is a tendency for people to assume that issues of inheritance will sort themselves out over time, which isn’t the case.
Different stages of life
Death is never easy to discuss, particularly when finance is involved. But these are important conversations to be having with clients. It is estimated that £1 trillion in wealth will be transferred from Baby Boomers and with this transition will come emotional conversations around family and inheritance. There seems to be a real need for advice in this area. A recent survey by YouGov for Quilter asked respondents about their top reasons for using a financial adviser. At the top of the table, a total of 80% said tax planning and inheritance, while 79% mentioned planning a will. Yet only 56% said they were comfortable having a conversation about death, while 57% of those surveyed did not currently have a will. Quilter’s webinar featuring Shaun Moore, Tax and Financial Planning Expert, Quilter, and Veronica Trotter, Financial Planning Consultant, discuss how to determine the best wealth transfer options for clients and how to have difficult conversation.
People have different needs at different stages of their lives. A discussion with a young couple with a young family could orientate around appointing guardians for their children. These conversations are not always easy. Sometimes the priority is establishing who you don’t want the children to go to rather than who they want to. In later life planning it is vital to have joint conversations with the individual, their children and family members. As people age, they become more vulnerable which could affect proceedings if the conversations are only taking place with the client.
Knowledge Gaps
There is a common saying. There is nothing as certain as death and taxes. We cannot fear these conversations. Having the confidence to start the conversation and build a relationship over time with your client is key. Death and inheritance are often the last things a client wants to discuss, but the stronger your relationship, the easier the conversations will become.
How advisers should approach early conversations
Most transfer of wealth takes place on a client’s death. This suits clients that want control and do not want to part with their money at an earlier point. Alternatively, people can look to gifting, perhaps helping a younger generation get on the property ladder. To those that can afford it and are prepared to lose control of some money, gifting can bring significant tax efficiencies. Trust schemes can be used to strike a balance, alleviating concerns surrounding the loss of control from outright gifting, although it isn’t quite as tax efficient.
Levels of control
to watch the webinar
Nomination drawdown
Pension death benefits are a crucial topic for all financial advisers. When a client passes away, their pension may be one of the most valuable assets that they leave behind. But how do you ensure the pension continues to provide for their loved ones? This webinar features John Corbyn, FPFS retirement specialist, and Marco Bittante, financial planning consultant at Lighthouse Financial Advice. They discuss the importance of nominations, the tax efficiency of cascading pensions and the risks and opportunities advisers face in this area. The webinar will also look at the potential impact of proposed changes announced in the spring budget and the impact of consumer duty regulations.
Nomination drawdown is a key aspect of pension planning, as it determines who will receive the benefits of a pension plan in the event of the pensioner's death. Advisers must ensure there is an alignment between what the client is trying to achieve and what the drawdown contract offers. The absence of a nominee drawdown can have significant financial implications. If a client exceeds their lifetime allowance and their contract only allows a lump sum payment, they could suffer a 55% tax charge. However, if the contract allows for dependent/nominee drawdown, the tax charge is 25%. Older contracts may only have a lump sum option, which can result in a higher tax charge for beneficiaries. Therefore, advisers and clients need to be aware of the options available for passing on pension funds and the tax implications that may arise. Some misconceptions surround the process. Some clients think that naming children or grandchildren collectively is satisfactory, but that is not the case, they must name the individual. By naming the individual it means that when the client passes, they’ve given the scheme administrator their wishes.
Spring Budget
Major changes were announced in the recent spring budget for pensions. Key changes include the removal of the lifetime allowance tax charge in tax year 23/24 and the removal of the lifetime allowance itself from tax year 24/25 onwards. The annual allowance also increased from £40,000 to £60,000, which may reduce the number of annual allowance tax charges being triggered, particularly from the NHS scheme. The removal of the LTA tax charge in tax year 23/24 and the complete removal of the LTA itself from tax year 24/25 may have implications for inheritance tax planning. The removal of the LTA tax charge in tax year 23/24 means that clients who pass away pre-75 with a large fund could potentially pass on the whole fund tax-free to dependents/nominees. However, clarification is still needed on this point.
Consumer Duty
Consumer duty regulations reinforce the need for financial advice to be tailored to the client. Consumer duty is about delivering good outcomes and providing client-centric advice, regardless of whether the client is a high-net-worth individual or not. Advisers have a responsibility to provide appropriate pensions advice and ensure that clients have enough money to last through their lifetime.
Marco Bittante
