The problems of intergenerational wealth transfers

The problems of intergenerational wealth transfers

When young people need money, they often find themselves at the mercy of the ‘bank of mum and dad’. 

But this is not the only source of financial assistance as baby boomers, usually grandparents, are increasingly playing a massive role in the transfer of wealth between generations. 

Recent research by Brooks Macdonald found £327bn is set to be passed on from baby boomers to around 300,000 younger potential clients over the next decade.

The research also found that 60 per cent of inheritors were not satisfied with their advisers and that an alarming 46 per cent of advisers do not have any relationship with their clients’ children.

So why are intergenerational wealth transfers an issue?

Robin Eggar, managing director and co-head of UK investment management at Brooks Macdonald, says: “It’s clear that in some cases there is a disconnect between what inheritors want from an adviser and what advisers believe they are looking for. With over £300bn set to be inherited over the next decade, and over 50 per cent of inheritors not sure they would use the adviser of their donor, the importance of closing this gap has never been greater.”

Generational differences

Kay Ingram, director of public policy at LEBC Group, expects the transfer of intergenerational wealth to become more challenging as generation X – typically classed as those born between 1965 and 1980 – age. 

She says: “In the future, retirement is likely to be more challenging as generation X ages. They are the squeezed middle who have not benefited to the same extent as their parents from defined benefit pensions.”

Ms Ingram adds: “They also missed out on defined contribution saving for the early years of their career as, unlike millennials and generation Z, they did not have auto-enrolment.”

Key points

  • Intergenerational wealth planning can pose problems
  • There is unlikely to be help from the bank of mum and dad in the future
  • Junior Isas can be helpful

This point is also echoed by Michelle Crowley, wealth planner at Succession Wealth.

She says: “People over 55 hold the majority of the UK’s wealth, accumulated through factors such as DB pensions, the long-term rise in the stock market and the boom in house prices. It is likely that property growth won’t be as advantageous for the next generation and most DB schemes have closed.”

Ms Ingram predicts the bank of mum and dad will run out of money, so baby boomers need to think carefully about how and when they pass their funds on. 

Emily Griffiths-Hamilton, family enterprise adviser and author of both Build Your Family Bank and Your Business, Your Family, Their Future, says 70 per cent of intergenerational wealth transfers fail due to lack of communication and trust. 

She adds: “Therefore, advisers and wealth management firms who take a proactive approach to assisting the baby boomer generation with the preparation of the upcoming generation – through activities like skilfully facilitating family meetings where families explore their shared values and vision and talk about the ‘purpose’ of their wealth – will find communication strengthened and trusted relationships not only being built with their advisers but oftentimes within the family itself.”