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Tony Wickenden: Make sure baby boomers’ children are clients

Money passed on via inheritances is set to double in the next 20 years as baby boomers pass away. Make sure their children are clients.

Advisers with an eye to building the long-term value in their business will be very clear about their current client base and will have a strategy for protecting and increasing the advice fee flow, assets under management and influence they generate.

People (especially richer people) are living longer and the choices involving their finances are increasing. All this bodes well for existing clients’ future need for advice.

The positive difference in a client’s net return after advice costs represents the advice alpha. This alpha comes from the better decisions and greater engagement with finances that having a good adviser relationship delivers. And most agree proving value will be even more important in this new Mifid II world.

Claire Trott: Cashing in on intergenerational planning opportunities

But there are also risks for advisers with ageing client bases. Longevity is one thing but, ultimately, we are all going to die.

For a business to avoid gradually going out of existence with its client base, a strategy for attracting new, ideally younger, clients will be important to complement the retention of existing ones.

The most obvious starting point for many advisers will be the children and grandchildren of existing clients. But the way in which younger clients can be best engaged needs a bit of thinking about.

Much has been written about the preferences of millennials in this regard. Some form of online or robo strategy would seem to be important as a means of initial engagement.

Without some form of appropriate and relevant relationship at an early stage, the delivery of face-to-face/more traditional advice when it is needed is much less likely.

A number of traditional advice and wealth management firms are recognising this in their acquisition and capability-development strategies.
With these components in place, businesses should be well positioned to capitalise on a potential flow of funds to invest through inheritance.

Tony Wickenden: Do clients know enough about IHT reliefs?

A recent study published by the Resolution Foundation found that the amount of money passed on through inheritance each year has doubled over the past two decades, and will more than double again over the next 20 years as wealthy baby boomers pass away.

Interestingly, however, based on the age and life expectancy of their parents, the estimated average age to inherit will be 61. And, of course, there is also the cost of care factor to take account of.

Nevertheless, property and pensions seem to be the main drivers of this expected inheritance flow. According to Resolution, home ownership rates increased rapidly for people born before, during and after the Second World War, peaking at around 75 per cent among baby boomers born between 1946 and 1965 – who were also the main beneficiaries of generous defined benefit pension schemes. This group now holds more than half of all the wealth in Britain.

Each successive generation following those born in 1955 has accumulated less wealth by a given age than their predecessors did at the same age.

According to a separate Resolution report, less than a third of millennials own their own home by the age of 30, compared with around 55 per cent of baby boomers at the same age.

Many of you with grown-up children will associate with this, and the associated trend of parental provision of deposit and/or help with paying or guaranteeing a mortgage for their kids.

That said, the children of baby boomers are more likely to benefit from an inheritance than their predecessors, and that inheritance is likely to be larger. If that turns out to be true, having a prior relationship with these inheritors will be essential.

Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn

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