The vast majority of financial advisers surveyed (91%) are concerned about losing assets in the ‘Great Wealth Transfer’ when trillions of pounds are handed down to future generations, according to the latest Scottish Widows Investor Confidence Barometer. Over half (57%) of advisers surveyed said that they only expect to retain services for a minority of their clients’ dependents upon the death of the client.
Are advice firms doing enough?
Nearly three quarters (74%) of advisers surveyed said they had a dedicated intergenerational planning strategy in place for the majority of their clients. However, that still leaves 1 in 4 (26%) advisers who do not yet have a clear strategy for their clients’ wealth transfer plans. One area that advisers may want to look at more closely is how they engage with younger dependants: while 75% of advisers believe it is important3 to foster a relationship with their client’s children, only 17% have established a relationship with the majority of them. This gap is even more pronounced when it comes to clients’ grandchildren. Just 12% of advisers reported that they have established a direct relationship with a majority.
Inherited wealth generally passes initially to the client’s widow. However, with only a quarter (26%) of advisers surveyed saying they had established direct contact with spouses for most of their clients, this is also an area where deeper engagement could be prioritised.
Advisers are hitting barriers to effective intergenerational planning
7 in 10 (70%) advisers surveyed cited the scepticism of younger generations towards the value of financial advice as the greatest barrier to dealing with clients’ dependents. This shows that there are still significant hurdles for the industry to overcome in communicating the value of advice to new generations of investors. Encouragingly, nearly half (48%) of advised clients surveyed said that they were willing to pay for theirchild(ren)’s’ financial advice before the dependents have any notable investable assets. This provides space for advisers to demonstrate their value to clients’ dependents at an early stage, without having to invest significant amounts of unbillable time.
The survey found that the second greatest barrier highlighted by advisers is the difficulty they perceive in discussing a client’s death with them (65%) and their spouse or dependents (69%). While a sensitive topic, effective estate planning relies on certainty, and advisers could benefit from bringing this topic up before their clients do. Worryingly, 4 in 10 (41%) advisers surveyed only talk about estate planning at or after retirement, with 16% waiting until after their clients are into their 70s or older. Nearly a quarter (24%) of advisers wait until the client initiates the conversation themselves, while 1 in 5 (21%) discuss it only when the client becomes seriously ill. Clearly there is significant scope to have earlier conversations with clients, as waiting too long can significantly reduce the availability of options, such as gradual wealth transfers or trusts.
Funding health and social care in later life is a key part of any retirement plan. A majority of both advised (59%) and non-advised (56%) investors surveyed cited that the need to fund health and care costs in later life was a barrier to passing on wealth to dependents. Advisers can play a key role here by providing clear and balanced plans that satisfy both the need to fund care costs and the desire to pass on wealth to dependents.
Ranila Ravi-Burslem, Scottish Widows, Intermediary Distribution Director said:
“Intergenerational planning is such an important topic, and it’s one that we’re really committed to supporting our advisers on. Our survey results suggest that there is scope to dial up engagement with dependents but, crucially, emphasises the need to have earlier conversations with clients about estate planning.
With the ability to pass pension wealth down the generations, advisers must ensure their clients not only have their beneficiary nominations in place, but that these are regularly reviewed as circumstances and priorities can change. Advisers should also to look to engage with named beneficiaries early, so that things run smoothly when a client’s family most needs it to.”
