Around £7trn is expected to be passed down to the younger generation by 2030, according to Vanguard, marking the largest intergenerational wealth shift in UK history.
The younger generation are already acutely aware of this impending transfer. Research by Standard Life has found that a quarter of Gen Zs and Millennials (24% and 23% respectively) are not saving for retirement because they’re expecting a considerable inheritance.
This shift presents a huge opportunity for the advice sector, but it also poses a number of challenges.
Advisers have built up relationships with clients over many years and have tailored their planning around those clients’ needs. But they may find that inheritors’ investment preferences, goals and attitudes to wealth differ significantly from those of their predecessors.
It has never been more important for advisers to actively engage clients and their dependants early on intergenerational wealth transfers
A key challenge for firms will be around engaging with inheritors early and adapting to the next generation’s changing attitudes and preferences – or risk losing the relationship.
Indeed, recent research by Capgemini found that 81% of next-generation millionaires planned to replace their parents’ wealth adviser, while a survey by Cerulli found that just 19% of investors were using their parents’ financial adviser.
Firms will also need to prepare to have difficult and potentially emotional conversations to ensure everyone is on the same page and prevent problems arising down the line.
Building relationships early
While advisers may have very strong relationships with their clients, they may not have the same bond with the client’s partner or children.
Advisers who engage early with the inheritors of this wealth have a better chance of retaining those clients into the future, experts say.
Colleen Cross, a 75-year-old advised client from Birmingham, has been trying to pass on her wealth to her children early, to avoid it being subject to inheritance tax (IHT) in future, but her children have never dealt with the adviser and are now butting heads over administrative issues.
We want to get to know beneficiaries and help them in any way we can
One of her children, who did not wish to be named, told Money Marketing: “[The adviser doesn’t] seem to care about our family’s wellbeing. It all feels very transactional and like they only care about their fee. I definitely won’t keep using them myself.”
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Warwick Bloore, senior specialist at Vanguard’s adviser research centre, says this kind of situation can be avoided by building relationships before the transfer of wealth actually happens.
“Our research indicates that advisers often neglect to sufficiently engage with both partners in a relationship and often do not engage at all with the next generation, giving inheritors little incentive to retain their partner’s or parents’ advice provider after they receive an inheritance,” he says.
“Advisers who engage with the next generation in the right way and at the right time will enjoy a considerable advantage.”
Understanding generational and gender differences could be the key to retaining client trust, confidence and assets during the wealth transfer process
Evelyn Partners financial planner Mike Wardlaw feels that good intergenerational planning involves getting clients to introduce their beneficiaries to the adviser.
“This way, we won’t be strangers to them when [the clients] are no longer around,” he says.
“We want to get to know beneficiaries and help them in any way we can. We also sit down with many clients’ beneficiaries to educate them on their personal finances.”
Understanding inheritors’ shifting goals and priorities
The future inheritors of some of this wealth are likely to be very different from their partners, parents or grandparents, and advisers will need to understand and adapt to these changing attitudes.
The inheritors may also have different preferences for how they wish to receive advice or engage with their finances.
Bloore says: “Understanding generational and gender differences could be the key to retaining client trust, confidence and assets during the wealth transfer process.
Advisers often neglect to sufficiently engage with both partners in a relationship and often do not engage at all with the next generation
“Advisers should keep in mind the differing priorities of parents and children. For example, Millennial and younger inheritors may prioritise accessible, digital advisory services, or may have a different degree of cost sensitivity and perception of where they see value compared with their parents.”
Ensuring everyone is on the same page
When engaging with families early, it’s important to make sure clients and inheritors are on the same page about where the wealth is going, says Bloore, and advisers should mediate where possible.
“Partners could have differing objectives. They may disagree with proposed inheritance, trust or succession structures, or have descendants they feel require additional support,” he says.
Advisers who engage with the next generation in the right way and at the right time will enjoy a considerable advantage
“Then there is the possibility of conflict among inheritors, with advisers required to play the role of mediator to facilitate open dialogue.”
HSBC Life UK head of onshore bond distribution Mark Lambert concludes: “It has never been more important for advisers to actively engage clients and their dependants early on intergenerational wealth transfers.
“Record IHT receipts, and demand from clients for support, clearly make the case for advisers to redouble efforts on estate planning.”
Laura Purkess is a freelance finance writer
