Wealth transfer: how to prepare for the responsible heirs

The advice market is currently being buoyed by the needs of the wealthiest demographic: the baby boomers, who were born between 1946 and 1964. As boomers age, though, we will start to see a wealth transfer take place. In the UK, we expect £5.5 trillion of assets will be passed down between now and 2050. On a global basis, around $68 trillion is forecast to change hands.

Although a 25+ year time frame may not feel like a top priority, we expect a £1 trillion wealth transfer will take place during the 2020s in the UK. While the current focus for advice is usually centred around the retirement market, it’s essential that advisers don’t ignore the opportunities and risks that wealth transfer presents. The staggering values associated with wealth transfers are clearly an opportunity for advisers. But there is also a risk of losing business if there is limited engagement with the beneficiaries of existing clients.

Cross-generational engagement

The needs, objectives and views of baby boomers can be quite different to those of Generation Xers (born between 1965 and 1980) and millennials (born between 1981 and 1996). Research by Deloitte has suggested that up to 90% of heirs change their adviser on wealth transfer. Being able to engage across the generations is key to client and asset retention.

Here are some key points for advisers to consider.

Impact on business valuations

If an adviser is selling their business, wealth transfers can have an impact on valuations. Buyers are now asking about the demographics of an adviser’s book. There needs to be a retention strategy for those assets or the valuation for the business will be lower.

Millennials

The transfer of wealth is strongly connected to millennials. They tend to lack time and so they like advice to be condensed into bite-sized information. They are also action-orientated and more likely to invest responsibly.

Women

Women tend to outlive men by around five years, so they are likely to be the first beneficiaries of significant wealth transfers. By 2030, American women are expected to control around $30 trillion in financial assets. Women are more likely to invest with a belief, purpose, and responsibly.

The sustainability narrative

There is an increasing awareness of sustainability issues within society. A logical next step is a change in buying habits and, therefore, a greater interest in responsible financial products. Engaging with beneficiaries about their sustainability requirements can be an effective strategy.

Adviser regulation

In November 2021, the FCA indicated that sustainability considerations should be a part of client conversations and the advice process. Current product governance (PROD) obligates advisers to consider the needs and objectives of their clients. It’s logical that the regulator could expect this to include a client’s preferences, needs and objectives around sustainability.

Talk to the beneficiaries

There is an increasing responsibility to consider the needs of beneficiaries, even though they may not have immediate advice requirements. This may take the form of a distinct proposition aligned to the needs of women or of different generations.

Advisers should also ask beneficiaries how they might invest their capital once they take control of it. By doing so, advisers will have a much greater chance of maintaining the family relationship after the death of their existing clients.