Ethinvest financial adviser Kathryn Fitch-Daniels said ahead of the upcoming ESG Summit 2023 that when parents transfer their wealth, their children could refuse to invest in companies with exposure to fossil fuels, while supporting industries that align with their values around issues such as gender equality and social cohesion.
As such, she recommended that advisers change their approach to service younger clients and conduct rigorous research around environmental, social, and governance (ESG) or ethical investment options.
“I think it’s important for advisers to know that these young clients might be more goal-driven rather than investment or wealth-driven,” she told ifa.
“They might ask less financial-specific questions and more ethical or sustainable questions. They’ll want reassurance that you know as much as them so it’s a matter of you being able to access research on this.
“So, it’s about asking the right questions and knowing the clients’ concerns and how deep they are.”
While some clients have general concerns about ethical investing such as excluding investments in fossil fuel, gaming, or tobacco industries, other client requests may be more specific.
“If you get really specific requests that are a bit harder, then you probably need to refer to a specialist because you may not be able to help that client or provide a tailored solution,” Ms Fitch-Daniels said.
Ms Fitch-Daniels’ comments preceded the ESG Summit 2023 in March (hosted by ifa’s sister brand InvestorDaily), where she and her colleague and financial adviser Julia Harley will present a keynote address on the role of ESG in the intergenerational wealth transfer and how advisers can evolve their service offerings to meet the needs of the younger generation as their mindset shifts on environmental, political, economic, and social matters.
Targeted approach to align with values
Ms Harley provided an example to ifa of a client whose portfolio consisted solely of bank shares, which she said did not align with their values and interests and had various capital gains tax implications since bank shares have performed strongly over the past 20 years.
She said she helped the client transition to a greener portfolio and one that was more aligned to their values over a number of tax years.
“This client is someone who is quite specific in their ethical preferences. They needed a really targeted approach, which meant the cost was going to be higher,” Ms Harley explained.
“But for a client with a broader approach, there are more funds, exchange traded funds (ETF), and investment solutions so you can have a much greener portfolio free of fossil fuel, tobacco, mining, gaming, and armament-related companies.”
According to Ms Fitch-Daniels, while Ethinvest’s client base is generally interested in ethical investing, new clients who have inherited a portfolio from their parents might ask her “to look at what’s under the hood”, including specific investments and how it could be changed.
“We then discuss tax implications and costs,” she said.
“But a lot of the time, because they’ve inherited this wealth, they’re less concerned about cost than if they had accrued the wealth themselves. But people are definitely changing portfolios and are not happy to just keep the status quo in the portfolio they inherit.”
As such, Ms Fitch-Daniels told advisers to expect different kinds of questions from the younger generation compared to their parents.
She also suggested that advisers should be open to involving children early in the process when they are advising their parents.
This is particularly important as the 2022 Schroders UK Financial Adviser Survey found that the majority (59 per cent) of advisers fear losing their businesses as wealth transfers between generations.
Jason Chequer, partner and head of advice at Sayers, said that over 70 per cent of people who inherit wealth will discard the previous generation’s financial advisers.
To hear more from Kathryn Fitch-Daniels and Julia Harley in their keynote address about the role of ESG in the intergenerational wealth transfer and how advisers can evolve to meet the needs of the younger generations, come along to the ESG Summit 2023.
It will be held on 23 March at Aerial UTS Function Centre, Sydney, and 29 March at Grand Hyatt Melbourne.
Click here to book your tickets and don’t miss out!
For more information, including agenda and speakers, click here.
They certainly won’t. They won’t have 40 years of falling interest rates to boost asset prices.