There has been non-stop talk about Australia’s great intergenerational wealth transfer for over 20 years but very little planning and even less action by the advice industry to proactively support families to smoothly manage this transition.
Despite being constantly reminded that $3.5 trillion will change hands by 2050, with Millennials and Gen Z set to grab a large chunk, few advice businesses have a clear strategy and sense of urgency around establishing intergenerational relationships with their clients’ children and grandchildren.
So much so that this dream opportunity is fast turning into a nightmare, as clients age and ultimately pass away, leaving their wealth to beneficiaries that advisers don’t know.
This dilemma is highlighted in a recent report by Natixis Investment Managers, which found that 46 per cent of advisers globally believe the generational wealth transfer presents an existential threat to their business.
While advisers retain the client relationship 72 per cent of the time when a spouse inherits, when it comes to inter-generations, the relationship and associated fees are most often lost.
The 2024 Natixis Report, Future Shock, found a third of advisers lose significant assets through generational attrition.
There are many understandable reasons for this, most obviously, fatigue.
Advisers want to establish relationships with their clients’ relatives and children but they’ve had a bit on.
Over the past decade, the industry has experienced unprecedented structural and regulatory change including higher education and training standards that sent many people back to school.
Then there are the regular everyday challenges of recruiting staff during a local talent shortage and managing escalating cyber security threats.
Like their clients, advisers are also getting older.
A significant percentage (as high as 37 per cent globally, according to Cerulli Associates) of advisers will retire and transition their business in the next 10 years.
With a relatively short time horizon, older advisers tend to focus on those controlling the assets and making the decisions today.
They see the task of building intergenerational relationships as a job for their successors.
However, when it comes to valuing advice businesses, buyers (particularly internal buyers) are increasingly discerning.
They want growing businesses.
A key qualitative indicator of future long-term growth is intergenerational relationships and this reality is increasingly factored into the valuation of modern advice businesses.
Ageing client bases carry inherent risk, especially if businesses don’t have an effective strategy for reaching future generations and retaining advice fees.
Estate planning makes business sense
Enterprise value aside, taking care of clients and their children just makes good business sense.
For most people, there is nothing more important than family.
At the core, their number one goal and priority is taking care of their family and leaving a lasting legacy.
Yet, many advised clients die intestate, revealing a hole in the advice proposition.
Historically, advisers have simply referred clients directly to a lawyer for their estate planning needs.
This gives advisers little to no visibility over whether a client actually sought legal advice and, if so, the quality of the advice they received, allowing clients’ needs to remain unmet.
The great wealth transfer presents a timely opportunity for advisers to better service clients by broadening their value proposition beyond retirement planning into estate planning.
While lawyers will continue to play a critical role, advisers are strongly positioned to ensure their clients’ wishes are accurately reflected in their estate plans.
They can provide advice on tax; prompt clients to update their plans, particularly if there are changes to their circumstances, such as the birth of children and grandchildren; and oversee the seamless transition of wealth.
Increasingly, this is happening while parents are still alive.
Two in five Australians prefer to leave a living legacy, according to research by Fidelity International.
The Fidelity Report, Rainbow’s End, also found that over three in four Australians believe that financial advisers have a crucial role to play in this transition by teaching future generations financial literacy.
Advisers can also facilitate and document discussions between family members and, if necessary, provide structure and mediation in more difficult situations, the report stated.
For advice businesses looking for ways to develop relationships with their clients’ family members and capitalise on the great wealth transfer, estate planning presents a stellar opportunity.
It’s likely that many family members will have immediate advice needs, given Australia’s complex tax and superannuation system, mounting levels of household debt, and the general complexities of life.
Others may only seek advice after they inherit.
Either way, advice businesses need to be more deliberate and aggressive about how they address the intergenerational wealth opportunity to grow and future-proof their business.
Brandon Thompson is chief executive officer of Yodal.
As financial planners, we should be the project managers on this for our wealthy clients. Often, the lawyers and accountants don’t want or have the knowledge/ability/gumption to orchestrate coordinated assistance between all three professions to ensure all are on the same page for the clients’ benefit, which leaves a marvelous hole that we’re more than happy to assist with and provide extra value.
We have focused on this area for at least the last 10 years. For all our HNW & UHNW families we ensure the adult children (and at times, adult grandchildren where relevant) all receive advice, whether as formal clients or informally if their current needs aren’t great but they require quality information. It probably isn’t surprising how many wealthy clients also have successful children, meaning they also already are quite decent clients even if their immediate investible wealth isn’t as quite as high. By assisting “family wealth” from a top down approach (especially as the main clients realise they’ll never spend it all in their lifetime) you can orchestrate outcomes that are very beneficial for the family across the spheres of long-term investing, taxation, estate planning, intergenerational wealth & creating a family legacy (including philanthropic outcomes).
Another intergenerational article missing the mark who cares about Millennials and Gen Z they are not getting their money for another 20 years plus…. Focus on Gen X (always forgotten) but are generally profitable as a client independently now and are at the tip of the spear for wealth transfer.
Horse to water, horse would rather die of thirst and watch the lawyers drink the water.
This is a great topic. The process for providing advice needs tweaking so that the data collection includes the family dynamics and related parties. Navigating the advice to include the family dynamics is crucial for this succession planning piece. Most parents are preparing their wealth for the children, but not preparing their children for their wealth. That’s the perfect role of a financial planner. The government has handed us this role in the Code of Ethics, Standard 6.