Your IndustrySep 26 2019

Advisers risk becoming 'out of touch' with next generation

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Advisers risk becoming 'out of touch' with next generation

Advisers have been urged to consider the changing demands from their clientele or risk becoming “out of touch”.

A report on intergenerational advice, published on Tuesday (September 24), showed 300,000 people were set to inherit £327bn in the UK over the next ten years and more than half of the inheritors were not planning to use their donor’s adviser.

According to the report from Brookes Macdonald — entitled ‘Seizing the opportunities presented by wealth transfer’ — this transfer of wealth provided an opportunity to advice firms willing to strengthen their existing client relationships but threatened the “unprepared firms”.

The research showed almost half of advisers did not have any relationship with their clients’ children despite the fact they were the most likely inheritors of their current clients’ wealth, while only 10 per cent had any contact with extended family members.

On top of this although 89 per cent of inheritors used an adviser, only 47 per cent were likely to use the same adviser as their donor while 53 per cent were not set to use the same IFA.

Darren Cooke, chartered financial planner at Red Circle Financial Planning, said good advisers were already working with families on intergenerational wealth planning to help avoid inheritance tax issues and engage with the next generation who will inherit liquid cash and property wealth from the baby boomer generation.

He said: “Many advisers are focused on assets under management and if a client doesn't have money, they won't engage with them. 

“Younger clients often don't yet have the funds so advisers don't talk to them. Then, when the money does come via inheritance, they don't want to speak to the adviser that didn't want to know them because they weren't rich enough.”

The research also found there were large discrepancies between what advisers believed inheritors valued from their services and what inheritors actually looked for in an advice service.

They’re seen as ‘the kid’ of my client rather than my client. I’ve experienced this as a client and as an adviserSarah Drakard

For example 89 per cent of advisers thought rapport with an adviser was very important to clients while only 59 per cent of inheritors thought the same.

In general the report found advisers believed reputation and the quality of relationships were the driving factors in the appointment process while inheritors cared more about investment experience and performance than advisers realised.

For instance, 59 per cent of inheritors thought investment performance was a key marker in the decision over which IFA to hire while only 36 per cent of advisers had thought so.

The report also stated younger clients would have greater demand for online access, often via smartphones, and that an absence of this capability could make IFAs or firms look “out of date”.

Sarah Drakard, IFA at Cruze Financial Solutions, said: “A lot of my clients are the inheritors of such clients because they don’t want to deal with the ancient dinosaur their parents trusted and often feel like the adviser doesn’t respect them in the same way they do their parents. 

“They’re seen as ‘the kid’ of my client rather than my client. I’ve experienced this as a client and as an adviser.”

Ms Drakard added it was important not to judge the inheritor who may have different goals and to understand the changing drivers of different generations. 

She thought younger investors tended to want to feel like they were involved in the investment choice, wanted online access and didn’t “just trust”.

According to the report, advisers should look at offering ‘firm-to-family’ advice to ensure all generational preferences were accounted for.

It stated: “Services that are valued by donors may not necessarily be to the taste of their inheritors and it is important for advisers to understand that having a relationship with a donor may not be enough to convince their inheritors to become clients themselves.

“Nevertheless, donors provide channels to engage with inheritors and adviser firms that are adequately prepared can use these to develop broader firm-to-family relationships.”

The report also noted that advisers didn’t need to “try to do everything themselves” — particularly within the challenging regulatory framework in the UK — but could partner with the services of other providers to broaden their product suite to facilitate every aspect of a family.

But David Hearne, director at Satis Asset Management, disagreed. He said: “What’s the point of having a niche —such as working with retirees with complex tax positions, with consultants and doctors or local business owners — if your plan is then to simply follow the money, whatever the future needs and characteristics of your current client’s children might be?

“Advisers should focus on being the best adviser they can be, in the area they have identified as best for them, and then be confident of attracting future clients on that basis, not on the expectation that they have an intergenerational entitlement to managing a family’s wealth.”

Mr Hearne thought advisers should only seek to advise the younger generations if they were in the niche the adviser had  identified or because it served their older clients’ wishes.

“Just build a financial planning business that answers the questions clients have at the time they have them. Build it and they will come.”

Peter Chadborn, director at Plan Money, said it would be “naive” for advisers to assume clients’ children would automatically want to retain the same firms’ services upon inheritance.

He also thought advisers would have an uphill battle in trying to appeal to clients’ inheritors if a firm’s service propositions became “stale and dated”.

Meanwhile Ricky Chan, director at IFS Wealth and Pensions, thought part of the reason advice firms were not necessarily building up relationships with clients’ children was because many advisers and firm principals were in the “latter stages of their career” so could be looking to exit the profession.

Therefore, Mr Chan thought, building such relationships could be “quite low down” on their agenda.

In terms of technology, Mr Chan said: “We have to concede that the future may be working in collaboration with ‘robo-advisers’ due to the greater resources they have in developing the technology behind the scenes to keep up with younger inheritors’ demands.”

imogen.tew@ft.com

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