Today’s wealth is held disproportionately by older generations. The numbers involved are enormous, driven by shifting demographics and substantial asset appreciation, including vast property wealth.
We estimate £7tn (in today’s money) will pass between generations in the UK over the next 30 years.
Dealing with generational wealth can be extremely difficult for the families involved.
Previous research has indicated that up to 70 per cent of wealthy families lose their wealth by the next generation and up to 90 per cent lose their wealth by the third generation.
Naturally, some of this is inevitable and should not necessarily be viewed as problematic. Inheritances get divided, taxed and the remainder may simply be spent in a sensible and non-extravagant way.
At the same time, much family wealth is lost needlessly due to a lack of communication within families, the failure to prepare and a lack of alignment on financial goals.
While financial advisers can shine in these circumstances, providing much-needed support and guidance, the upcoming great wealth transfer has the potential to challenge many adviser firms, while providing comparable opportunities for others.
Success will depend on the ability of firms to engage the generations due to inherit, and to design propositions that meet the needs and preferences of the coming generation.
The initial path of an inheritance is commonly to a female partner.
Women live longer than men on average, with an additional seven years of life expectancy worldwide, and are slightly younger than their spouses on average in every country.
However, there is a high propensity for women to move away from a financial adviser after the death of their male partner.
The research indicates that, usually, this is because the adviser has not built a relationship with the female partner or is unable to adequately demonstrate they understand the woman’s perspective, goals and preferred ways to engage.
It is a similar story when it comes to children that inherit.
A study from Cerulli Associates indicates that 87 per cent of children report being unlikely to consider their parents’ financial adviser when they receive an inheritance.
Again, a lack of engagement is mentioned, meaning children have no reason to pick their parents’ adviser over any other, particularly those recommended by peers or those with whom they have existing relationships.
For advisers, challenges can also arise from their own involvement in any wealth transfer process.
They may be closer in age or personality to the client than to the client’s children and lack a sophisticated understanding of the descendants’ wealth priorities and principles.
The opposite may also be true.
The adviser may encounter significant difficulty in retaining a family as clients if the adviser's services are not viewed as providing continued value after the death of the initial client.
The division of inheritances may also mean the inheritors are left with smaller balances than the adviser would typically advise on, and that servicing them may be uneconomical.
