Talking to IFA Magazine, Les Cameron, Head of Technical Services
at Prudential, identifies some of the highlights from Prudential’s new Family Wealth Unlocked report which he believes will help advisers to overcome some of the hurdles involved in effective intergenerational planning.
Prudential’s Intergenerational Planning “Wealth Unlocked” report was released in March. It uncovers multigenerational family views on financial planning and how advisers can best respond to this challenge, to help future proof your business.
The time is now
According to research from Kings Court Trust, assets to the value of £5.5trn are expected to be passed to the next generation in the UK between the years 2020-2047. This includes much of your clients’ wealth.
As Prudential’s report highlights, taking action now will mean that the more your clients’ offspring are engaged in the planning process, the more likely it is that your business will retain the account for the longer term.
But where do you start? What are the issues and barriers involved? How can you overcome them? Prudential’s Les Cameron has some practical ideas on the subject.
The advice gap
As Cameron explains “when we looked at the research it’s clear there is still an advice gap. So, if you’re dealing with granddad for example, ask if it’s OK if you speak to dad. If you’re dealing with trustees, ask if it’s OK to speak to the beneficiaries as well. Asking permission to go and speak to a wider range of the family makes good sense.”
The report also looks into some of the myths and perceptions which surround the use of financial advisers. These are useful elements for advisers to consider when building their business strategy.
It identifies specific areas of concern which Cameron highlighted, such as advice being too expensive, too complicated or that an adviser is not trustworthy. He comments “Maybe 40 years ago you might have thought that this was the case, but we have a highly regulated industry now. It’s trying to get beyond those perceptions, but you can only do that by your professional demeanour.
“Then it’s tackling myths. Do clients understand where their money would go after they die? Many might think it’ll just go to their spouse automatically. Maybe it will but are they thinking about their pension? Commonly, people think their family can inherit their pension. The law allows that but the schemes do what the schemes want to do within the law. It’s good to try and draw those things out.”
The report also looks in some detail at whether different generations of a family might have concerns about sharing the same adviser. As Cameron explains, “It’s important to get on top of this and dispel any doubts. Whether you’re dealing with the same family or not, you still have data protection rules and client confidentiality requirements to consider. You can’t be sharing the whole family’s information with the whole family unless you’ve got the whole family’s permission, to do so.
Thinking about clients’ situations and highlighting planning ideas or areas that might need work should also be on the radar. Cameron cites an example of clients who may have a grandchild and explains “their children might have a protection need now because they’ve got a child depending on them. They may have given birth to a child benefit tax charge.
“Identifying the different life stages that apply to your different clients is an opportunity to highlight such things as being a significant change for them. You can then ask questions such as “Have they been getting any financial advice?” It’s about generating new leads by reacting to family circumstances.”
The COVID effect
Cameron sees a strong opportunity for advice here as indicated by the survey findings. He comments: “Over half of our survey respondents said they’d already sought advice or were likely to seek advice because of the COVID pandemic. Encouragingly, it showed that when younger generations do seek advice, if their parent uses an adviser, more often than not, the child will look to use that same adviser.”
Cameron highlights two angles in the research about why people might delay decisions on intergenerational planning. Firstly, are general perceptions about advice such as cost, complications or lack of trust in advisers.
The other relates to worries about giving money away too early because of particular concerns such as the risk of money being squandered or loss of control.
“An adviser can deal with these concerns” he comments. “For example, by explaining about how the use of trusts can mean giving money away now, but still retaining control over the money.”
Then there’s tax. Counter to what some clients might think, advisers can highlight ways which won’t give their beneficiaries a tax problem. As Cameron points out, “you can actually be giving someone tax relief by giving them money. If clients put money in their child or grandchild’s pension, they get tax relief.
A key impediment to planning is the need for access to funds. Clients may worry that they’re going to need the money themselves, that they’re not giving away in case.”
The effective use of trusts can help here as Cameron explains. “There are always competing outcomes. There’s the client’s need for the money for themselves, the need to pass on the money and the desire to pass on the money as IHT efficiently as possible. Somebody has to sit down and help them see these are your needs, these are your priorities. But that’s what getting financial advice is all about.”
So, what are Cameron’s tips for advisers in connection with intergenerational planning?
“Think about your current proposition but also your future proposition. How do you start seeing future generations coming into your advice firm? If they inherit the assets, you want them to be your clients. By thinking of how you can future proof your proposition, means making sure that different generations of clients’ family come to you and not another adviser.
“Secondly, IHT is a fairly complicated area. It’s an emotive area. People don’t like paying it. People will want to move their money on to the right people at the right time with the right amount of tax. And almost all of them will need a financial adviser to do that efficiently. Promote your services to help people understand how that wealth transfer can go the best way for them and their families.”
Reading the full report is clearly a good place to start.
For more information