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Are advisers at risk of losing wealth across generations?

Young adult female with cancer hugging her daughterFinancial planners are being urged to consider what happens to their business models if they fail to ensure that the wealth they currently advise on stays with the firm as it is passed down the generations.

A host of reports over the past few year have identified a growing need for advisers to come up with ways to ensure families and children of existing clients are well served and stick with the firm as the typical baby-boomer client bank ages.

As one of its 11 trends to watch in a report in July last year, SEI noted that the size of the traditional client bank of over 50-year-olds is a highly competitive space in wealth management, but because even most new clients are in their fifties and younger generations lean on the Bank of Mum and Dad more and more, areas like estate planning must be at the forefront of advisers’ minds.

The report reads: “This ageing (and indeed dying) client base emphasises the importance of retaining assets within the firm by helping clients with estate planning and reaching out to younger generations within families, who stand to inherit their wealth.”

“To assist with this effectively, firms will need a well-honed strategy for engaging with customers, as well as solutions and technology that appeal to the next generation of investors.”

A similar report from Accenture found 18 per cent of advisers have never met with clients’ children, and over half don’t hold meetings with future heirs more than once a year. Accenture argues that advisers need to start building a hybrid model that embraces digital tools now before the next generation takes over the client relationship, otherwise they are unlikely to want to use the service.

How advisers are reaching out to younger clients

Similar themes have been explored across the globe, including by chief investment officer at US investment manager Brown Brothers Harriman Scott Clemons, who cites research showing that a quarter of generational wealth transfers fail because heirs have not been adequately prepared.

Research by US publication Investment News suggests around two-thirds of children fire their parents’ financial adviser after they receive an inheritance, but just 13 per cent of advisers ranked generational wealth transfer as a business risk.

In June, Sanlam became the latest business to warn advisers about attracting younger generations of clients and winning inherited pots. While those aged under 45 are in line to inherit more than £1trn over the next three decades, two-thirds of advisers are not making any efforts to engage with them.

Proactive steps

Some advice firms, however, are already addressing the intergenerational transfer issue. For example, Cardiff-based financial planners Penguin Wealth recently launched subsidiary Penguin Legal Services and will be offering the children of existing clients a free will in the coming months.

Penguin also ran a series of three workshops on estate planning on weekend mornings so clients’ children could be bought along and have the role of a trustee, executor and power of attorney explained, but also ideas on managing inherited money.

Penguin managing partner Craig Palfrey says: “We don’t want the first time we meet your kids to be just after you die.

“It also gives our young adviser a chance with new people who they can cut their teeth on and add value too.”

“I do think there is a danger if you don’t have that tough conversation about trust planning the kids will walk out the door. The more you can educate them on what to do with money, the more you can do for them, the better.”

Finance and Technology Research Centre director Ian McKenna notes that advice firms looking for a potential sale will need to pay particularly close attention to these issues so buyers know that assets will stick around.

He says: “The ability to secure intergenerational transfer of clients’ wealth is clearly a key factor to take into account when calculating the value of wealth management and financial adviser business.

“The extent to which firms have successfully engaged with both their clients’ partners and their children will have a dramatic impact on the sustainability of assets under advice.  There are several steps that can be taken either by a selling business, or the acquirer to mitigate these risks. If addressed in advance by the selling firm, the value of the business being sold can be expected to be higher.”

Engage Financial Services managing director Sam Sloma notes that there are also potential wins for advisers taking on the parents or grandparents of younger clients. The average age of Engage’s client bank is 38, and Sloma says customers frequently want to discuss how the adviser can help family members from older generations who do not have a planner.

Sloma says: “Only a handful of our clients are baby boomers passing assets down, but for us if the parents haven’t got an adviser that is an opportunity.”


Justin Cash, Editor of Money Marketing

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