30 vs 60: Approaching clients' generational differences

This is something advisers know only too well. Having to juggle clients of various ages and in different stages of their lives is fundamental to the job. But not all the answers are obvious.

FTAdviser In Focus caught up with Toby Bentley, financial adviser at Lathe & Co, to hear his thoughts on how advisers can overcome issues that arise due to clients having different priorities, and how financial needs change as life evolves.

FTAdviser: What are the main issues that arise when helping different generations with financial planning?

Toby Bentley: Understanding an individual’s priorities is key to successful financial planning, and the obvious issue with working with different generations is that those priorities change depending on what stage of life they are in. 

Older generations tend to be in a decumulation phase where retirement planning and passing down money to their own next generation are the main goals. Younger people, conversely, are typically in the accumulation phase, where building savings for a house or a family is the short-term aim. 

Another key differentiator between generations is the contrasting economic environments various age groups lived through, and understanding them plays a crucial role in tackling intergenerational financial bias. 

A classic example is the role of historical interest rates, with older generations who experienced higher rates far more likely to be predisposed to paying down mortgages than younger people who now benefit from cheaper debt and can therefore reallocate their assets elsewhere.

Each generation also benefits from, and loses out to, their own set of financial planning legislation, with changing pension rules being chief among the examples here. Allowances that might be eligible for one person almost certainly won’t be for their generational counterpart. 

FTA: Broadly speaking, what should advisers focus on in clients' accumulation and decumulation phases?

TB: Financial planning for a 30-year-old will typically be focused on getting the basics in place during a period of instability as they buy first homes, start a family or establish careers. 

These basics include mortgages, insurances, savings and tax planning, with more of a focus on getting the infrastructure set up to let the time they have and compound interest do the work for them. Their risk appetite may be slightly higher as they have a longer investment horizon. 

A 60-year-old obviously has less time to rely on these basics to build a pot of assets, and would typically be looking to plan for retirement in the near future using the assets available to them. 

Retirement looks different to everyone, and therefore the planning at this stage will focus on things like modelling a sustainable retirement income and inheritance tax planning. They may have a reduced attitude to risk at this stage, with a preference for income producing assets.  

FTA: Do you agree with the idea that older generations are more in tune with their finances and therefore more engaged?

TB: There is the stereotype that younger people are less engaged with their finances due to the more modern propensity to spend, but I actually think it is this generation who are more actively engaged for a number of reasons. 

Firstly, because they have to be. Employers are far less generous than they used to be, one example being that many older people can rely on more generous defined benefit schemes as opposed to having to actively manage a defined contribution pot as younger people do.

Other contentious financial issues that have made headlines for younger people, such as higher university fees and soaring house prices, have also prompted more engagement from younger generations. The role of the media in general has heightened younger people’s level of activity within their own financial planning, with more information available than ever before.

Conversely, older generations tend to be more relaxed about the speed of the financial information they receive as they have been subjected to less transparency from providers over the years and paper-based statements as opposed to instant access via more modern apps. 

FTA: How should advisers/providers be tackling the challenges and the difference in planning needs between generations?

TB: Advisers and providers can tackle these intergenerational differences by first and foremost acknowledging them. Understanding the personal and economic context within which an individual is approaching financial planning is a key step towards this. 

The role of the financial adviser is also shifting; where once it was to educate people based on a lack of readily available information, this has now changed to tempering people’s expectations due to the masses of disinformation online. 

FTA: How do the next generations looking for financial planning differ from their predecessors, and what must change to accommodate their needs?

TB: Younger generations are beginning to put their finances under the same scrutiny that they do with many aspects of modern life, particularly in terms of sustainability. 

Financial services must approach future generations' financial planning needs with a more focused ESG lens, and be prepared to cater to these needs with genuinely viable options. 

For providers, the transparency and speed of information younger people expect is also a massive generational shift. There could be a major upheaval for older and larger platforms and advisers who do not have the infrastructure to deal with this. 

With current legislation leaving fewer options available to younger people in terms of tax-efficient allowances (particularly surrounding pensions), younger generations will also expect advisers to offer a wider service, where all aspects of a person's financial plan are taken into account, as it will be these small marginal gains compounded over time that make the biggest difference for younger investors.

amy.austin@ft.com