We all know that currently the over-50s account for 80 per cent of the UK’s wealth and they are expected to account for 82-84 per cent by 2012. The danger is that we focus most of our time and efforts on servicing their financial needs. What about the younger generation who will be the clients and business of the future?
There are two potential markets for IFAs – one is the current indigenous population, sometimes called the Ipod generation, and the second is the ever-expanding immigration population, both of which offer real opportunities.
Introducing the Ipod generationAccording to a recent survey by the CII and thinktank Reform, the Ipod generation, (insecure, pressurised, overtaxed and debt-ridden), of 18-34-year-olds are more inclined to spend and borrow than save.
Nearly 30 per cent of Ipods have no savings (excluding pensions) whatsoever. However, Ipods are potentially more capable of managing their money than previous generations. They have a strong sense of ownership, a desire to be in control of their finances and an instinctive grasp of technology and see this as a key way to manage their finances (89 per cent of Ipods would buy a financial product over the internet).
This group also places greater trust in friends and family rather than relying on price comparison sites or IFAs whom, incidentally, a third of Ipods think are out of touch with their generation.
They also prefer simple and straightforward products and information that feels relevant to them.
However, the real issue is how to engage with them, whether that is using technology to deliver services to social networking (58 per cent of the 11 million active social networkers in the UK are aged between 18-35) or by employing younger advisers to connect with this generation.
As the report states: “Ipods’ rigor in seeking recommendations and double checking advice with family and friends is positive. It signals their sense of personal responsibility and a level of awareness and gives hope for new formats for financial advice.”
Immigration offers IFAs a new challengeIn addition to this, a greater proportion of this generation than ever before will come from a number of overseas countries, each with their own financial culture.
The United Nations has just predicted that Britain will overtake Germany as the country with the highest population in Europe within the next 30 years as immigration increases. By 2050, our population could rise from 61 million to 72 million (this is seen as critical fiscally in terms of supporting an ageing population. This workforce will, according to projections, contribute a record £77bn to the UK economy by 2012).
Retailers have been quick to spot the opportunities posed by the increased immigration population. Shops selling products from “home” are commonplace and even many of the major banks have introduced accounts aimed specifically at migrant audiences.
So how can other financial providers and advisers engage with this ever complex group who have different experiences, expectations and concerns about what to do with their money?
For instance, 78 per cent of eastern Europeans who came to work in Britain last year were aged between 18 and 34 and only 11 per cent had dependents living with them.
The majority of this group has little recollection of the way things were during the Iron Curtain era but much of their behaviour and attitude towards money will have been learnt from their parents who, while never wealthy, had financial security provided by the state.
For this group, long-term savings has never been an issue while short-term saving has as they, historically, have had to pay cash for goods. Thus their attitude to credit cards and loans is tempered with their long-term cultural experience.
Then in contrast look at the Poles who are a nation keen to get on the property ladder and recent research found that they, on average, save up to a quarter of the salary each month.
Not only will we need to look at where clients of the future are coming from and what their needs are but in which part of the country they will reside. In 2005, 45 per cent of the 1.5 million foreign migrants working in the UK were European and nearly half of all migrants live in Greater London but this is likely to change.
With so many different nationalities starting to settle in the UK, IFAs and providers need to find ways to engage with this diverse community that are both practical and cost-effective on the one hand and sympathetic and empathetic to the consumer on the other.
Brands well known in home markets will be able to leverage their relationships here, of course. International passporting of investments and pensions is likely to be needed and tax advice will become more complex.
Advice will be key and again that is good news for the IFA community.