'The great wealth transfer’ - a big opportunity for advisers

The ‘great wealth transfer’ is expected to happen over the coming years. It’s estimated to see trillions of wealth passed down to future generations – from baby boomers to millennials. This has forced many advisers to think about their client bank, and the longevity of their relationship with them.

One in three (29%) advisers cited client longevity, or an ageing client base as their biggest concern in relation to their advice business, according to a recent report from AKG in association with Charles Stanley and Canada Life.

In the same report, advisers said intergenerational business and multi-generational business (servicing clients’ extended family members) as the most promising development opportunity in the market.

A relatively low hanging fruit for advisory firms who can put a well-structured wealth transfer strategy in place. But where to start?

Understanding the problem

Advisers spend their entire careers building up a client bank and a wealth of client assets. However, if advisers fail to put plans in place to build a relationship with their inheritors, they risk seeing the assets go elsewhere.

The problem facing advisers is the feasibility of extending their services to clients’ family members. They are (often) younger, so typically they have less current wealth, and therefore do not qualify for advice and fall into the advice gap.

This makes it difficult for advisers to establish a relationship and build rapport with their successors.

A recent report from Scottish Widows said when it comes to clients’ grandchildren, only 12% of advisers said they have established a relationship with them.

Another important point for advisers to consider is the relationship they’ve built with their clients’ spouse as the majority of baby boomers’ wealth is tied up in joint households.

And we know women tend to live longer than men. This means women will be controlling the lion’s share of wealth before the intergenerational transfer takes place.

Building on existing client relationships

Two in five advisers (40%) listed marketing costs, or issues attracting new clients as their biggest concern about the current advice market. Directing more energy and resource into securing the longevity of existing client relationships could help to address this concern.

Putting an intergenerational planning strategy in place means advisers will spend more time focusing on servicing their existing client base and engaging across generations to retain business. We think this could offer more bang for their buck over the long term.

It’s argued that intergenerational planning is a “win-win” for clients and advisers with clients able to maximise the tax-efficient accumulation of wealth, while minimising the tax on funds withdrawn and transferred.

This could lead to better client outcomes as families are planning on passing their wealth in a tax efficient way. But it’s also good business as advisers retain their client base and build trust through generations and therefore retain wealth over the long term.

Developing advice firms’ proposition

The next generation of wealth owners are going to be vastly different to their predecessors. Growing up in a digital world, with smart phones and managing their money via online banking and apps, means their expectations on how they would like to communicate with advisers will be much different. Firms will need to adapt their proposition to cater for millennials or risk getting left behind.

Firms will also need to develop their investment solutions to offer a flexible and holistic range of investments to suit multiple generations. This can be achieved by offering a discretionary fund management (DFM) service through a third-party.

DFM allows advisers to adopt a hybrid offering with, multi-asset funds or model portfolios suited to younger generations in the accumulation phase of their life stage with more simplistic needs. And then moving to tailored models or fully bespoke portfolios for the older generations with more complex requirements. All while retaining the same investment process and consistent outcomes across the entire family and client journeys.

Outsourcing the investment management element of the advice business model gives back time to advisers to focus on what they do best – driving engagement, building deeper relationships, and ensuring they maintain their client bank through the intergenerational wealth transfer.

Follow the link to read more about the future of financial advice.

Download the report

AKG is a leading provider of information to the financial services community. The report is proudly sponsored by Charles Stanley.