Opinion: Digital connectivity needed for intergenerational wealth management
15 August 2019
Niral Parekh, managing principal at Capco, comments on the FCA’s discussion on intergenerational differences
Whether we like it or not, we’re all getting older. More people will wait until their 50s, 60s and even 70s before they inherit their parents’ wealth, and inheritance is also leapfrogging generations with gifts straight into the hands of millennial grandchildren. It’s unsurprising that beneficiaries in their 20s or 30s will have a completely different way of dealing with financial firms than their parents or grandparents.
Yet today’s financial planners, investment managers and family offices struggle to implement an intergenerational wealth transfer service as a key part of their service model. They let valuable relationships slip away – a ‘leaky pipe’ phenomenon which can leave younger generations without access to the quality advice that helped build the family nest egg. Wealth managers’ failure to engage younger generations can create a generational disconnect and lead to poorer financial outcomes.
The challenges require a combination of tactical fixes and strategic transformation of advisory business models. Technology is often cited as the answer, but a capital expenditure of several million pounds to build a comprehensive digital advice model, connected to a company’s current non-cloud enabled technology systems, may not carry favour in the boardroom. This is especially the case given it’s difficult to even quantify the size of the leaky pipe.
If the solutions aren’t available in-house due to cost or resource constraints, wealth managers should consider partnerships with challenger banks and digital entrants. The key is that the whole family should see the wealth manager as the primary liaison, who provides the breadth and flexibility to meet their needs.
The FCA wants to increase collaboration between generations and to do that wealth managers must refocus on the family. To enhance the operational and technological ability of the firm to cater to an overall family service, they should embrace the onset of Open Banking, PSD2 and the challenges and opportunities thrown up by building API connectivity across various inter-connected savings and investment accounts.
It’s time to fix the leaky pipe. As we see larger amounts transfer between generations – either through tax efficient gifting or large inheritances over the next 30 years – a holistic, intergenerational service from a wealth manager will go a long way to sustaining the familial ties that this industry has proudly built itself upon.
The London Institute of Banking & Finance has launched a new Level 4 qualification in paraplanning, developed in consultation...
With the pace of regulatory changes seemingly set to continue unabated, Steve Bailey, director of ATEB Consulting, lists a...
Professional Paraplanner is delighted to announce two new events series for 2020, The Investment Committee and the Team Leader...