In the latter years of the previous decade, an Australian game show decided to split contestants into three age groups – baby boomers, Generation X and Generation Y (millennials) – and quiz them on aspects of popular culture. The simple idea was that people from different eras are likely to have different knowledge sets.
The Financial Conduct Authority is not known for taking inspiration from quiz shows, but a recent paper by the watchdog shares many of the same principles. On May 2 the regulator published a discussion paper titled ‘Intergenerational differences’ focusing on the same three demographics: baby boomers (those born between 1946 and 1965), Generation X (1966 and 1980), and millennials (1981 to 2000).
Rather than pitting the generations against each other, the question for both the regulator and advisers is how to cater to all three groups at the same time. The FCA described its paper as a “discussion with industry, consumers and their representatives, regulators and academics to understand the changing financial needs across generations for UK financial services markets”.
The subject of intergenerational differences had been touched upon in previous papers, but this is the first time the watchdog has given the matter its own spotlight.
“To ensure financial markets work well, we need to understand how socio-economic changes impact both markets and individuals,” the regulator noted.
This will strike a familiar chord for intermediaries, who are well aware of the need to consider multiple generations at once.
That said, while matching the financial needs and goals of certain demographics in isolation is a commonplace occurrence, intergenerational wealth planning – namely the balancing act between a client’s needs and those of their offspring – can be trickier.
The scale of the issue is hard to overestimate. A recent report by Sanlam found that millennials expect to inherit £1.2tn from their elders over the next 30 years. But intermediaries are conscious that younger generations may not yet have fully grasped the reality of their situation.
“These are massive societal issues we’re trying to tackle, and it’s clear that a multi-stakeholder response is required: by the government, regulators and businesses, but also consumers,” says Jane Goodland, corporate affairs director at Quilter.
“We’re in an era of personal responsibility for our financial futures and that’s news for a lot of people, even though we’ve had a very clear shift from [things such as] defined benefit to defined contribution pensions. A lot of people still fail to fully grasp that the state probably won’t be there when they retire in the same way it has for previous generations. We’re having to challenge our previous wisdom that we’ll be better off.”
If history has anything to go by, shifting too much responsibility to consumers is unlikely to deliver the desired outcome. There are also question marks over what powers the FCA truly has to address the issue.
Hayley North, chartered financial planner at Rose and North, would like to see the regulator make it easier for advice firms to deliver low-cost, simplified restricted advice alongside full independent financial planning.