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Intergenerational wealth transfer – Opportunity or challenge?

Research shows that over the next decade £1 trillion of assets will flow to future generations[1] and that 80% of financial advisers believe that this is a significant business opportunity. However only 9% are facilitating family conversations to help manage this transfer[2].

Evidence also indicates that the generation inheriting wealth have a different attitude towards advice than their parents and prefer to use and pay for this only when they have a specific requirement. Potentially of greater concern is that 65% of those inheriting wealth are unlikely to use the same financial adviser as those passing on their wealth.

Given this backdrop, are financial advisers truly well positioned to maximise this opportunity? Here are some steps which might help:

1. Audit the opportunity

Many advisers have clients who wish to pass on some of their wealth but have not considered how much of that wealth is likely to remain within their management. A recent survey indicated that 15% of firms had lost up to 50% of their value due to lack of a strategy for intergenerational wealth transfer. A good starting point is to review the assets under management and fee income being generated by clients of a certain age – or within a segment. It might be as simple as the following:

Whilst simple, it might start to paint a picture, particularly if 65% of the asset flows and associated income is likely to move.

A more detailed analysis listing specific clients within an age band might reveal some further concerns…

In the above example, where there is low or medium level engagement with the family, it could be argued there is high risk these assets could move if the client passes away. A quick analysis of the later life client segment on this basis could identify potential fee income at risk and where the opportunities are to engage with the wider family.

2. Develop a new proposition

Engaging with the next generation to help retain future assets is not simply about recruiting a millennial to work with you. Many advisers feel that they simply don’t have a service and advice proposition for that next generation so perhaps an option is to define a new client segment and develop a new offering. This proposition might include mortgage and protection advice, school fees planning and simple savings options. The charging structure might also need to be reviewed to a fixed fees approach.

Client engagement through technology could also be considered as should the appropriate investment proposition. Whilst wealthy clients might need their inheritance tax carefully managed through a bespoke mandate, for those who might inherit wealth, starting to save in a multi-asset fund or platform based model portfolio solution is likely to be more appropriate and preferences such as sustainable investing will also need to be taken into account.

Currently 38% of those likely to inherit wealth will put this into a savings account so helping clients with early investment education is also a good start.

3. Understand the influence of women

Whilst the focus of wealth transfer is often to the next generation, the first point of transfer is often husband to wife. This is where things can get really interesting as 70% of women will change the financial adviser on inheriting wealth.  Research[3] indicates that women often felt ‘shut out of the conversation’ and when they moved adviser, they looked for one where there was more of a ‘personal fit’ who understood their concerns about health and longevity. According to the survey, women often felt unpractised in making financial decisions and are more risk averse and afraid to ask basic questions. They  therefore wanted to work with someone who understood their concerns. As a significant amount of baby boomer wealth is currently held by joint households, delivering focused advice for women shouldn’t be overlooked.

4. Consider your business valuation

Over the next few years, many advisers are considering an exit strategy for their business. However, if transferred wealth ‘walks away’ from the business, this could impact a valuation if based on a multiple of income.

Many acquirers are now considering the age profile of a client bank (which is often in line with the financial adviser!). The Schroders Annual UK Financial Adviser Survey  last year looked at the average age profile of clients. The results in the chart below demonstrate that whilst advisers believe that intergenerational wealth transfer is a great opportunity – only 9% of businesses have clients where the average age is between 20 and 50!

In short, intergenerational transfer of wealth can deliver a range of opportunities but planning for this is required!

To read the latest insights, click here or visit our website to find out how Schroders can help you

For more articles like this, visit our insights page

[1] CEBR and Kings Court Trust, 2017

[2] The Generation Game, Sanlam report, 2018

[3] McKinsey survey, 2020

About the author

Gillian Hepburn, UK Intermediary Solutions Director, Schroders

Gillian has over 30 years’ experience in financial services. Prior to joining Schroders, she had an extensive career at Standard Life followed by consultancy positions with a range of platform providers, asset managers and financial advisers. She also founded DISCUS, a business which provided research, insight and educational content for financial advisers about the outsourced investment market and spent time as Head of Strategic Partnerships at the Embark Group.

Gillian is responsible for outsourced investment solutions for the UK Intermediary market including model portfolios on platforms and multi-asset funds.

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