The importance of intergenerational wealth planning cannot be underestimated when it comes to the future of financial planning businesses, says Nicola Butterworth, Financial Advice & Compliance director at ValidPath.
In 2015, the Government announced the most radical reforms to the UK pension system that had ever been seen. Pension Freedoms, as these were known, meant that consumers with a defined contribution (DC) pension pot would no longer be restricted to purchasing an income for life, typically an annuity, when they retired. Instead from the age of 55 they could access their pension savings more flexibly through a cash withdrawal or by using other retirement income products.
This was a huge decision and one that divided opinion, would people run out of money, would they end up not spending enough? The one thing it did do, due to images of Lamborghinis and cash machines, was put pensions on the front page of the national newspapers, in a positive way for the first time.
Finally, people were talking about pensions in the UK at dinner parties, having a drink at a bar or at the water machine at work. For many, this was the first time they realised the value of their pension and started to engage with their long-term savings.
Due to the flexibility of Pension Freedoms, it has also led to people only accessing the money they need and looking at passing it down the generations. This intergenerational wealth transition is creating interest with people looking to consolidate assets and funds and looking to financial advisers to help do this in the most tax efficient way possible.
For financial advice firms, this intergenerational wealth transition is very important from a business perspective and something that cannot be ignored. It has been highlighted in various research papers that around two thirds of those inheriting money do not intend to use their parents’ financial adviser after they receive the money. So, financial advisers need to be very mindful of this and work with families so that they don’t lose the client, but rather provide advice over the assets for many years, across many generations.
It’s about more than just assets
But it isn’t just about the assets, it is also ensuring that they have the right wills in place, the right expressions of wishes and putting a power of attorney in place. Making sure that wealth goes to those a client wants it to is very important, there can be trusts used, or just ensuring that all of the legal formalities are exact and reviewed in case things have changed.
One area that can make this easier for the family, is getting everyone to talk about the situation, what the wishes are of the parents, and dealing with the awkward questions early on. The UK, unlike many other countries simply don’t talk about finances and money. In part this has been created by the financial services sector, regulation and lack of flexibility, unlike somewhere like the US where 401k plans are discussed openly and it is almost a competition of how much you can save, that just isn’t how it is done in the UK.
But things are changing, and Pension Freedoms has helped with this, coupled with innovation, in particular in the FinTech sector, where there are more apps and technology that encourage people to save and invest.
For financial advisers, this is an important area as it is likely that those clients looking to pass on their assets and wealth, before or after they die, will have more tech enabled and tech savvy dependants. This is a great opportunity for adviser firms to harness this, and also look at how dynamic data can support more suitable advice on an ongoing basis, rather than annual reviews that have been the norm for decades.
It is almost taking the family office approach to managing clients and their families, advisers are no longer just looking at a husband and wife, but their children, grandchildren and due to increased longevity, great grandchildren. It should be an honour as a financial adviser to be able to help so many generations with their wealth creation and maintenance.
How and what advisers say to clients, engaging them in different ways will help them to grow their business long term and help their clients to get the financial future they want for themselves and their families.
