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Why inherited wealth is a ‘lucrative’ business opportunity

This article is part of
Guide to retaining intergenerational wealth

The real value of inheritance tax revenue has grown from just over £3bn in 2000 to more than £5bn today, and is set to rise again to £7bn by 2026-27, according to analysis by the Resolution Foundation, with the think tank attributing the higher revenue to both more people passing on inheritances and from the growth in the value of the average inheritance. 

“Clients are generally driven by two factors when it comes to gifting in lifetime: reducing the value of their own estates to mitigate IHT and/or simply helping the next generation plan for their own futures,” says Alex Loydon, private client director at St. James’s Place.

“If the right planning hasn’t been put in place and/or the family haven’t been properly engaged, a significant percentage of wealth passing hands could be subject to IHT at 40 per cent. A good adviser can help mitigate this.”

An opportunity for advice

Research from LV highlights the opportunity for advisers to support intergenerational wealth transfers. The provider’s survey found that more than half of parents (57 per cent) had spoken, or were considering speaking, to a financial adviser about the best way to pass on wealth, but only 13 per cent had done so.

“Given the level of wealth transferring hands, advisers have a vested interest in keeping this business,” says Loydon. “But let’s look at it from the client's perspective. Depending on how long the funds have been invested with and managed by the adviser or business, it may be detrimental to the client to move – a ‘decades, not days’ mindset.”

Browne at Progeny says that while generation X may be the primary beneficiaries of inherited wealth at the moment, in time this will pass to millennials and beyond, with the risk of regulated advice being relinquished increasing with each generation.

Loydon similarly cites a proverb that wealth does not last beyond three generations. “I’ve seen [this] play out many times. The first generation makes it, the second maintains it, the third spends it. So for the benefit of preserving family wealth, advisers have a role to play.

“There’s probably also something in the fact that increasingly the younger generations will have smaller pensions, so less opportunity for advisers to manage pension funds and so inherited wealth presents a lucrative opportunity – one worth doing everything possible to hang onto.”

Retaining client relationships with inheritors

Gillian Hepburn, head of UK intermediary solutions at Schroders, says that if widows or the next generation are changing advisers, this presents a problem for retiring advisers.

“This is a particular challenge for any adviser looking at an exit strategy and trying to maximise the valuation of their business, which is essentially based on a multiple of income and therefore assets. Having a good wealth retention strategy in place is about future-proofing the business.”