What are the real implications of intergenerational wealth transfer?

  • Describe the issues around intergenerational wealth transfer
  • Identify changes in the population affecting wealth
  • Explain the advantages of using a trust

There is an estimated £1.2tn in existing wealth assets with an estimated £1.2tn invested in Defined Benefit schemes, with Defined Contribution Schemes predicted to accumulate more than £1.25tn within the next 10 years.

More recently, Bank of England data shows that household cash deposits now stand at £1.6tn and grew by a staggering £124bn between Jan – Nov 2020 as a result of households saving 26.5 per cent of their disposable income – an all-time record.

In fact, according to Moody’s, if consumers spend about a third of their excess savings, they would boost global output by just over 2 percentage points both this year and next. 

What are we learning about families?

Divorce rates and complex family formations are on the rise along with the ever-increasing cross-generational client needs.

The number of people getting married age 65+ has increased by 46 per cent in the last 10 years (92 per cent were divorcees), and in terms of will planning, there was a threefold increase in the number of people who made a will last year compared with 2019. People are now keener to set up LPAs, check their life cover and have a plan in place to pass wealth down to the next generation. 

What effect is the Great Wealth Transfer having on attitudes towards engaging with financial planners?

From what the statistics are showing – huge. The 55+ age group are keen for the next generation to engage with advisers, with 76 per cent of people wanting to engage when they inherit, highlighting the recurring theme of bloodlines and the desire to retain control and influence. Unfortunately, 70 per cent of women leave their financial adviser within one year of their partner dying and although there is still a larger proportion of inheritors who choose to use their parents’ adviser when they inherit, a third choose to go elsewhere.

How is the Great Wealth Transfer impacting on the industry?

Banks have featured heavily in the financial press over the last few months as they prepare for the opportunity expected because of the anticipated intergenerational overhaul. Lloyds is an example of a bank that has launched its plans to make insurance and wealth management a core offering following its 2018 announcement of a joint venture with Schroders, and it will soon announce an execution-only service.

Coutts (part of NatWest) announced in February their plans to launch a £30bn wealth management business, and Royal London, one of the only providers not offering advice themselves, have recently purchased a majority stake in Wealth Wizards from LV= which is a direct-to-consumer robo-adviser.

Finally, last week saw the launch of the long-awaited, 0.79 per cent all-in, hybrid financial planning service from Vanguard, which has been on the cards since 2017.