Are advisers ready for the intergenerational wealth transfer?

Despite this, there is a huge disconnect between advisers and the inheriting generation.

Rhiannon Vallis, wealth director for Unique Financial Planning, puts this disconnect down to technology, platforms and the mass of information readily available on the internet.

FTAdviser in Focus caught up with Vallis on some of the biggest challenges for advisers when it comes to this transfer of wealth, and what advisers will need to do to prepare for it.

FTAdviser: Can you provide some context around why the rate of intergenerational wealth transfer is accelerating?

Rhiannon Vallis: The generation of non-contributory final salary retirees are realising that their children and grandchildren will not have the same opportunities – jobs are no longer ‘for life’.

Careers may mean moving away or daily commutes, and so the next generation are having to divert their incomes to contributory pensions, university fees, childcare and other things that weren’t needed when their parents were the same age. 

The challenges are making sure they invest it with due care to their inheritance tax position as well as their own objective.

This triggers the movement of wealth as money is gifted to help with house purchases, school fees and so on.

The inheriting generation are also far more in debt than their parents, who typically paid their mortgages off in the early 50s, had their children young and on their way career-wise and so had a further 15 years of excess income to use to build up their savings and investments. 

FTA: What are some of the largest challenges affecting those inheriting wealth and those giving it?

RV: For clients who gift outright, rather than by way of a trust or in an accessible business property relief investment, the concern is not usually about their children but who they have married and the impact of divorce eroding the value of the gift. 

They recognise that divorce is incredibly common - new marriages and step-grandchildren also mean that more flexible solutions are required.

Concern about the potential need and cost of nursing care is always a consideration. At up to £60,000 a year, this eats very quickly into savings and the family home.

For those inheriting wealth, without a debt to put it against, the challenges are making sure they invest it with due care to their inheritance tax position as well as their own objectives. 

Many of our clients inherit their parents’ investments free of IHT on death and, for some of them, it is an amount of money they have never dealt with before. 

Intra-family disputes and allocation of assets, particularly with the demise of the nuclear family and complex relationships, can be a significant issue where clients haven’t made effective plans including wills, trusts and gifts.

FTA: Are advisers prepared for the next generation of wealth owners?

RV: When it comes to gifting via an investment, we speak with the whole family to ensure that everyone understands the wishes of the client.

The next generation of wealth owners are between 40 and 60 and I feel that most advisers find this a relatable age group; certainly most large accumulators are in this age group. 

My concern is the adviser population is generally not young, and whether we have the right amount of advisers to match their very different advice needs – both in practical terms and the way in which they like to operate which is mainly on-line and through technology.

FTA: Where is the biggest gap between advisers and the next generation? 

RV: If there is not a link between the adviser and the inheriting generation, advising them can prove fruitless. The gifting generation are, in my experience, always very keen for their beneficiaries to meet with their adviser and receive advice.

I think technology and platforms, the wealth of information on the internet all make the wealth adviser’s role more challenging than it was 20 years ago.

Bitcoin may be a step too far for their grandparents, but we get a lot of questions about it from this generation.

The generation of 40-50 year olds straddle the line between wanting a face to face, trusted relationship with their adviser and being very focused on what they deem to be valuable, i.e. what they are willing to pay for, in that relationship.

FTA: How should advisers be tackling the challenges and the transfer of wealth between generations?

RV: Advisers need to be far more involved in the generational planning of the entire family; there is no point saving huge amounts of tax over what could be a 20-30 year relationship with the client only for it all to be thudded straight back into the estate of the successors with no planning behind it.

Many advisers in this area are only interested in taking on portfolios over a certain value; we look after the entire family, from complex IHT solutions, down to junior Isas for their grandchildren, because we value the long-term relationship. 

The gifting generation are open to generational planning to protect the assets they have worked hard for – and to have someone support them in making sure their children invest sensibly.

FTA: How are the next generation of wealth owners different?

RV: They have not achieved the same financial strength as their parents.

The gifting generation were generally free of financial burdens – mortgages, children – by their early 50s and worked until 65, giving them many years to put money away for investment. Saving was the norm and not buying anything until you could afford it was accepted.

Intra-family disputes and allocation of assets can be a significant issue.

The generation of 50-60 year olds have had children late, mortgage for longer, have higher debt, take loans out for cars, technology, furniture, second homes, have changed jobs on average six times and, in the main, had to pay for their own retirement.

Add to this the huge increase in early retirement and you have a very different financial landscape.

Cash-flow modelling is a vital tool in helping this generation understand how long their money will last and what they need to do to increase their chances of a financially improved retirement.

Those aged 20-40 are more aware of alternative and unusual investment opportunities, mainly due to social media. Bitcoin may be a step too far for their grandparents, but we get a lot of questions about it from this generation. 

They also are far more attracted to ease of use, preferring everything on one app or platform; however, they are far less likely to value paying for advice and will take a lot longer to make a decision as to whether they want to follow yours, usually after trawling the internet for a better price. 

The advising industry needs to be flexible to this approach and prepared to drop fees and take a longer-term view.

sonia.rach@ft.com