Opportunities for advisers in the transfer of wealth

Speaking at a Vanguard event in Sydney on Thursday, Andrew Inwood, founder and principal of CoreData Research, said that while a 2021 Productivity Commission research paper puts the intergenerational transfer of wealth at $3.5 trillion by 2050, the real number could be much higher.

Mr Inwood explained that a Treasury official had explained to him that while the calculations of wealth held by Baby Boomers can calculate house values and see what’s in bank accounts and super funds, assets like home contents, collectible art, and businesses are a mystery that could balloon the figure to $4.9 trillion.

The good news for financial advisers, he said, is that there is a great need for expertise in handling this massive transfer of wealth.

“You can’t outsource this. There’s no phone call centre for this. There is no digital app for this. This has to be done by people who know what they’re doing and can manage the process,” Mr Inwood said.

“For everybody in this room. This is really good news because the amount is extraordinary. The need is extraordinary. And the skills are actually reducing, not increasing.”

He added that this need is exemplified by the attitudes of retirees who have found out just how difficult it is to deal with the ins and outs of Australia’s retirement system.

“When we ask people who are retiring what they wish they’d done earlier, the most common response is get advice,” Mr Inwood said.

“I wish I’d gotten advice early because this is complicated. And structural changes, fundamental changes in the way in which people set up their assets makes an enormous difference in this country.”

Along with the Baby Boomers moving into retirement, there will also be shifting drivers of engagement, he explained.

While the accumulation phase allows for a somewhat homogenous process, typified by low fees, acceptable returns and low touch, this all changes in the decumulation phase.

“Retiring and decumulation is heterogenous, it’s about the individual,” Mr Inwood said.

“Every individual has different needs, and every individual – unless they’re a very small part of a behavioural group that loves to control every part of everything they do – it is very stressful, it’s very worrying, and they want to pass the task to somebody else. They’re prepared to pay for it and they need to have it done properly.

“So, making sure that happens is really important. And that’s driven by excellent administration, high interest, high touch and highly personalised. This is about the family every time and that’s quite confronting.”

Improving trust in financial advisers

Trust in the financial advice profession plummeted in the wake of the royal commission into banking and financial services.

Mr Inwood said that, five years on from the Hayne inquiry, CoreData research shows that the profession has rebounded back closer to where it belongs.

“The Hayne inquiry had a massive impact on [Australian’s] trust in financial planners and the really interesting part about it is financial planners fell right to the bottom during the Hayne inquiry and it’s been steadily coming back,” he said.

In an early look at upcoming CoreData numbers, financial advisers rated a 5.2 out of 10 on the trust scale. This puts the profession ahead of industry super fund executives (4.4), retail super executives (3.9), and bank executives (3.6), but not quite in the range of other financial professionals.

Actuaries sit around 5.4 and accountants are at 6.0, while the rest of the more trusted professions are things like paramedics, nurses, doctors and police.

“What I think is going to happen is it’s going to drift up even further and start to bobble around where the actuaries are, about that 5.4 and get closer to accountants. That’s the normal spot for financial planners, in the mildly trusted proposition,” Mr Inwood said.

“I think we should, in the future, take out everybody above accountants because they are people acting in stress points in your life, cops, psychologists etc. So it’s not really relevant.

“The closer we get to six, which is the middle point for trust in Australia, the better off we are, and we’re climbing that ladder really quickly.”