What you need to consider when advising older clients

  • List how family finances have changed over the past few decades.
  • Describe why clients are having to manage their money for longer.
  • Identify what advisers need to differently to advise clients over 50.
What you need to consider when advising older clients

How do you know you are covering ‘all the bases’ when advising clients that are 50 and over?

Here are the different areas to consider and the contributing factors.

Before we start, it is worth looking back to how family finances have changed in the past 30 to 40 years.

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The 20 to 30-year-olds of yesterday – the 50 to 60-year-olds of today – are likely to have had very different expectations of what their life was going to be like when they started planning for the future, compared to today.

The traditional nuclear family, with Mum and Dad and 2.4 children, has long passed. But it is worth remembering how this has evolved.

Thirty to 40 years ago, financial priorities might have looked something like:

  • University being funded primarily by grants, so university funding was not a primary consideration.
  • Parents being concerned with helping their children save for a small deposit for their first homes.
  • An expectation that the mortgage would be paid off well before they expected to retire, perhaps with a mortgage endowment policy.
  • Relatively high interest rates, compared to the previous 10 years, making saving more attractive but borrowing more expensive.
  • Many workers expecting an employer final salary pension scheme, with planned retirement ages of 60 for Mum and 65 for Dad.
  • Financial advice focusing on Dad, usually the main breadwinner, who typically had a higher risk appetite than Mum.
  • For many, at retirement, having a lump sum to invest perhaps for the first time. So financial knowledge and confidence, when it came to more sophisticated financial planning and investment options, was low.

So much has changed in the past 25 years.

  • ‘Free’ university education is no more, with most young people expecting to take out a student loan as well as get help from their parents with the costs of living and studying away from home.
  • Parents are still concerned with helping their children save for a deposit for their first homes, but typically deposits are no longer small and children ‘fly the nest’ much later, as high rents and high house prices make leaving home less affordable.
  • There is a high likelihood that mortgages will continue up to, and even through, retirement as the ‘baby boomers’ come under pressure not only to help their children with studying and housing, but also because they may have elderly parents to support.
  • Interest rates are low, making saving less attractive, but borrowing more so.
  • Final salary schemes are, in the main, long gone, so now most have defined contribution pensions, typically with lower employer contributions, and new pension freedoms offer (quite complex) investment and other options.
  • Financial confidence and knowledge is still low, but with the changes in pension provision, many more will have to grapple with how they are going to fund their retirement and the various options on offer.
  • Does financial advice still focus on Dad? Potentially, but that needs to change.
  • It is no longer the case that men are always the main breadwinners. While women are more likely to take time off to have children, and to work part-time while their families are young, we also now have the availability of shared parental leave, flexible working (for both parents) and far more career options for women. Although, of course, the pay gap remains. Research by UBS shows that women are making many more of the family’s financial decisions. When you are advising a client, do you include their partner in the discussions, or suggest it?

Is financial advice taking all of this into account?

As well as considering your clients' current situation, you may need to help them adjust their expectations of what life in their 50s, 60s and beyond, will look like.

Managing our money for a longer life

As life expectancy increases, so does the number of older people in our population.

The Office for National Statistics (ONS) data tells us that one in every five people (18.2 per cent) in 2017 were 65 or older and this is projected to reach around one in every four people (24 per cent) by 2037. 

That is not ‘news’. Everyone knows we are living longer, but there is also a higher likelihood of living with impaired health for longer – potentially without appropriate healthcare or care support in place, and/or without the money to fund it.

Healthy life expectancy is now 63.3 years for males and 63.9 years for females in England.

So that is potentially between 16 to 20 years of living in poor health.

Not only is there a societal need to support the ageing population, there is a financial advice need to support an ageing population.

The demand for advice should be expected to increase given the shift in life expectancy and the impact on client needs. And women, typically, live longer than men.

So we know we are living longer but we also know there is increasingly likely to be an advice gap.

Research by The London Institute of Banking and Finance, in conjunction with Seven Investment Management (7IM), showed that when planning for retirement and later life, most people do not take financial advice and have not even begun to think about preparing for later life care.

The value of property is not currently being factored in, despite accounting for more than half their assets, which may reflect a desire to leave an inheritance and/or help out younger generations.

In fact in excess of 70 per cent say that they are not currently taking advice and regard themselves as family-focused, cash conscious and cautious investors.

To this end they want to protect their inheritance to pass on to their family; have confidence in cash in the flexibility and security it gives them; and are cautious in their approach to investing money due to needing to provide an ongoing income and the potential costs they may incur in paying for long-term care.