In Focus: Intergenerational Wealth  

How generational investment aspirations have shifted

  • To understand how Covid-19 has shaped younger people's investment plans
  • To be able to explain the risks and opportunities of investing sustainably
  • To be able to ascertain the priorities of younger investors
CPD
Approx.30min
How generational investment aspirations have shifted
 Cottonbro via Pexels

As more young people start to invest in stocks and shares, what investment behaviours and trends should advisers be paying attention to when it comes to reaching the younger generation? 

According to a report published earlier this year by Prudential, increasing numbers of investors appreciate responsible and sustainable investment options - particularly those aged 30 and under.

This growth in appetite for responsible investment can be explained by a growing concern for social sustainability. Social sustainability and responsible investment involve ethical participation in the financial market by investors. 

Responsible investment takes into account any possible financial return as well as targeting positive environmental impacts.

Firms can invest long-term in financially prudent strategies, offering innovative, ethical solutions to environmental issues.

And, in the context of intergenerational wealth planning, responsible investment becomes even more important due to shifts in the financial priorities of younger generations. 

Great Wealth Transfer

Following the coronavirus pandemic, statistics show that people have started to care more about the environment. 

In the eight-page report from Prudential, Family Wealth Unlocked, 60 per cent of millennials said the pandemic has increased their appetite for sustainable investments.

Similarly, 44 per cent of generation X and 25 per cent of baby boomers reiterated their desire to move into sustainable investment options.

One of the key issues raised in the report was the role played by responsible investment in intergenerational wealth. Wealth is transferred between generations annually and this can be completed through inheritance or gift transfers. 

According to the King’s Court Trust, £5.5trn of wealth will be transferred between generations between 2017-2055, and this is set to peak in 2035. 

Ahead of the great wealth transfer, 39 per cent of all advised clients confirmed they expect to increase the amount they invest into sustainable, impact, environmental, social and governance and wider investments over the next five years, the Prudential report added.  

Covid impact

Ahead of the great wealth transfer, we have seen a shift in financial priorities. Younger investors are increasingly concerned about sustainable and responsible investment. 

But some advisers have seen this trend emerge even before the pandemic.

Alan Chan, director of IFS Wealth and Pensions and Chartered Financial Planner, says: “The growth in sustainable and responsible investing started well before Covid-19, as more and more people became conscious about what their money is invested in, and where.”

He adds: “Increased media coverage about responsible investing has largely contributed to this and the adoption of sustainable practices worldwide (such as replacing plastic packaging with paper) has helped individuals to understand the world is changing and they can help drive change to create a sustainable world.”

Tim Morris, IFA with Russell & Co, agrees there has been a change in most people’s perceptions of the environment. However, he feels this might prove temporary. 

He explains: “There was a real shift in focus to the environment last year. That seems long forgotten by most people generally.