How to consider future generations when passing on wealth

This article is part of
Guide to intergenerational wealth transfer

How to consider future generations when passing on wealth
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Financial advisers who turn a blind eye to the future potential of clients’ children do so at their peril, as cash-strapped youngsters who cannot afford advice now can become a lucrative source of business in their 50s.

According to Hargreaves Lansdown, those aged 25 to 34 have an average of almost £126,000 in wealth, about half of which is in property, but those aged 55 to 64 have almost £860,000, the lion’s share of which is in pensions.

The advent of auto-enrolment from 2012 and the removal of the need to purchase an annuity since the introduction of the pension freedoms in 2015 are contributing factors.

Gradual rises in the values of property and investments over time are also factors, along with rising incomes, which tend to peak at some point during our 40s.

Then there is inherited wealth, with the Kings Court Trust predicting that £5.5tn pounds will pass between generations in the UK during the next 30 years.

Catriona McInally, business development manager at Prudential, says: "Historically, the next generation just continued to work with their parents’ advisers, but the difference nowadays is the advancement of technology. Younger people tend to be more savvy, knowing they can switch investments in a couple of clicks. The older generation has been less likely to switch because of loyalty to a brand and the relationships they hold with their adviser.

“So having a relationship with the next generation is a big issue for advisers, otherwise the money might not stay with them. They need to find ways to engage without having to spend much on what’s probably not currently a profitable source of business.” 

Engaging the next generation

There is certainly no lack of awareness among advisers of the importance of forming such relationships early.

Tim Clay, wealth planner at Succession Wealth, has started offering clients’ children video calls that typically begin by highlighting how world events have impacted on markets during the past few years, while Peter Chadborn, director and adviser at Plan Money, invites clients to ask their children to attend their next annual review session.  

Chadborn says: “We put quite a bit of thought into this as a company. A lot of clients have found sorting out the affairs of deceased parents highly complex as they’d had no prior idea of their finances, so we suggest it would help if their children know what they are doing for them and why. It makes the kids more likely to turn to us if they need a mortgage or savings vehicle.”

Mattioli Woods highlights that the pandemic has made parents more willing to talk about their wealth with their children as a result of becoming more conscious of their own mortality. Transgenerational wealth, which was further down the list pre-Covid, is now its second most discussed issue, after investment performance.