In today’s developed markets the owners and guardians of large financial assets are undertaking possibly the biggest intergenerational transfer of their wealth that we have witnessed in a single generation. Indeed, last year the amount of wealth transferred in the UK was £69bn, according to Kings Court Trust.
Advances in wealth platforms and payments technology are making this flow happen more rapidly and more securely than ever before.
As information becomes increasingly available, and as advances in computing power and algorithms allow most tax and planning calculations to be carried out cost effectively and in nano-seconds, ‘new affluents’ are more digitally savvy than ever before, and are now demanding more value from their wealth managers.
Today’s financial planners, investment managers and family offices are at risk of losing valuable assets and letting relationships leak into the hands of more digitally-focused market entrants, unless they implement an intergenerational wealth transfer service as a key part of their service model.
Businesses may have to quickly evolve to appeal to younger, wealthier family members, who have very different attitudes and preferences to savings and investing.
The demand for inheritance advice planning continues to rise, with inheritance tax revenue for HMRC reaching £5bn last year for the first time. Cash flow planning, coupled with sound financial management, is an extremely tax efficient gifting mechanism for passing on wealth to family members over time, effectively redistributing retirees’ future surplus income earlier.
Know your family (KYF) has become imperative, as it is vital that wealth advisers understand and incorporate the needs of all family members in the wealth planning process. Money saved through effective tax planning, combined with maintaining an advice model covering all family members, is a win-win for both clients and their wealth managers. Family assets remain intact as a single client offering.
If wealth managers are confident in their advice and the strength of their long-term relationship with their clients, advances in technology, particularly through the rise of open application programming interface (API), as a preferred mode of connectivity between financial institutions, means that there is no need to be constrained by any specific products.
With Open API, they will be able to ensure they offer the very best cash accounts, savings products and pension policies. Investment models can also be accessed, opened and maintained over entire lifespans and across generations. A further improvement that is starting to emerge is the ability to track asset flows, account relationships and communications with clients, all on a real-time basis through an adviser’s own app.
As always, change takes careful planning – in-house sales, compliance, operational and technology teams must collaborate to enhance their internal service model, while navigating new rules resulting from changing regulation. Some firms in the industry are even flipping the concept on its head, and partnering with challenger banks and fintech firms to effectively ‘source in-house’ best practice service models from the industry.
Still, nothing beats a simple customer-driven approach to fixing any of the intergenerational ‘leaky pipes.’ Clear and concise goals – for the individual and for the family – and carefully crafted solutions are worth their weight in gold.