According to EY’s Global Wealth Research report, among Australians set to inherit wealth in the coming years, just 35 per cent plan to keep assets invested as they currently are.
Meanwhile, 51 per cent say they intend to keep assets invested; however, they plan to diversify their investments across other asset classes.
This, the firm said, signals an “opportunity for advisers to better engage with inheritors” in order to deepen their understanding of the client’s goals and plans, which ultimately encourages retention across generations.
Looking at what inheritors want from advisers, the report found that providing a clear and transparent fee structure (56 per cent) is a top priority when it comes to encouraging them to stay with their wealth donor’s adviser.
Advisers being able to present a strong understanding of the inheritor’s specific financial goals and needs (54 per cent) was also highlighted as a key factor, followed by building trust through open and honest communication (53 per cent).
Speaking on the findings, Rita Da Silva, EY regional wealth and asset management leader, Oceania, suggested that digital capabilities were found to be considerably more important for advisers looking to work with younger Australians.
“Thirty-eight per cent (38 per cent) of local Gen X and 31 per cent of Millennial respondents consider access to advanced digital tools and technologies as one of the most important factors when choosing a wealth provider, compared to just 19 per cent of Boomers,” Da Silva said.
“So, this should be an area wealth managers are focusing on as they prepare to transition to the next generation of investors.”
When it comes to working with younger clients, digital capabilities has proved an increasingly important consideration, and as AI continues to work its way into every faucet of life, looking at how this technology can be utilised has become an increasingly common topic among advisers looking to capture this opportunity.
Highlighting this demand, the report found that while 56 per cent of Australian respondents expected their wealth manager to use AI in some capacity, Millennials (72 per cent) and Gen X (60 per cent) were even more likely to have this expectation.
Even so, EY found that Australians have been slower to trust AI tools than the global community with less than a third (29 per cent) of local respondents stating that they trust AI-powered tools as much as, or more than, human advisers, compared with the global average of 38 per cent.
Recent times have seen the launch of AI-powered platforms delivering financial advice, though these do have strict guardrails in place as required under the law, in an attempt to bridge the advice gap.
However, this may not be the solution we are looking for with almost half (46 per cent) of Australians saying they weren’t comfortable with AI-driven financial advice without a human adviser, highlighting the need for a hybrid-service approach by advisers looking to utilise these tools.
According to the findings, when it comes to using AI tools, the biggest factor hindering trust is ultimately concerns regarding data privacy and security (52 per cent), followed by accuracy (51 per cent) and the “lack of human touch” (51 per cent).
Is all this focus on fund retention in intergenerational wealth transfer really appropriate? There seems to be an implicit assumption that it’s ultimately the adviser’s money, regardless of any ownership change. Perhaps this is driven by FUM based pricing and/or inhouse product FUM maximisation?
But it never was the adviser’s money, and when the client dies it’s no longer the client’s money either. It belongs to someone else who has their own requirements and objectives, and their own preferences for the type of adviser they want to deal with. Preferences which are unlikely to be the same as their parents. In many cases they will also derive tax benefits from liquidating the investments straight away, so that CGT is incurred by the deceased estate at lower marginal rates. This is potentially a massive conflict of interest for the previous adviser.
The first thing estate beneficiaries should be doing is getting themselves a completely different financial adviser to their parents.