Research by the Centre of Economics and Business Research for the Kings Court Trust suggests that over the next decade £1trn of assets will flow to future generations.
Separate research from Sanlam found that 80 per cent of advisers polled believe this is a significant business opportunity. Yet it also found that only 9 per cent are facilitating family conversations to help manage this transfer.
Evidence also indicates that the generation inheriting wealth have a different attitude towards advice than their parents, preferring to pay for advice only when they need it.
What's potentially of greater concern is that 65 per cent of those inheriting wealth are unlikely to use the same advisers as those passing on their wealth.
Given this backdrop, is your firm really well positioned to maximise this opportunity? Here are three steps which might help quantify the business potential.
1. Audit the opportunity
Many advisers have clients who wish to pass on some of their wealth, but not all firms have considered how much of that wealth they're likely to be advising on in the future.
A recent survey suggested that 15 per cent of firms had lost up to 50 per cent of their value due to lack of a strategy for intergenerational wealth transfer.
A good starting point here would be to review your business based on the level of assets under advice, as well as the fee income being generated by clients of a certain age, or within the ‘later life' segment.
It might be as simple as:
While this is a straightforward exercise, it might start to paint a picture - particularly if 65 per cent of the assets flows and associated income is likely to move.
A more detailed analysis listing specific clients within an age band might clarify the issue further:
In the above example, where there is low or medium level engagement with the wider family, it could be argued there's a high risk these assets could move away from your firm if the client passes away.
A quick analysis of the later life client segment on this basis could identify the potential fee income at risk, and where the opportunities are to engage with the wider family.
2. Develop a new proposition
Engaging with the next generation to help retain future assets isn't simply about recruiting a millennial to engage with them.
One option worth considering is to define a new client segment and develop an appropriate service proposition.
This might include mortgage and protection advice, school fees planning and simple savings options.
The charging structure might also need to be reviewed as, according to the research, younger people tend to only want to pay when they receive a specific service.
The use of fixed fees rather than ad valorem charges may be a good option here.
Client engagement through technology could also play a role, and the appropriate investment proposition is likely to look different if you currently serve the more traditional at retirement market.
Wealthy clients might need their inheritance tax carefully managed through a bespoke mandate, but clearly for those who might inherit wealth, they are likely to have different needs.
As such, the starting point might be investing in a multi-asset fund, or platform-based model portfolio.
Currently 38 per cent of those likely to inherit wealth will put this into a savings account, so helping clients with early investment education may also be a useful service.
3. Consider your business valuation
Over the next few years, many advisers are considering an exit strategy for their business. However, if transferred wealth ‘walks away’, this could impact a valuation if based on a multiple of income.
Many acquirers are now considering the age profile of a client bank (which is often in line with the selling adviser's own age) as part of their due diligence.
The Schroders annual UK financial adviser survey last year looked at the average age profile of clients.
The results below demonstrate that while advisers believe that intergenerational wealth transfer is a great opportunity, only 9 per cent of businesses actually have clients where the average age is between 20 and 50.
In short, intergenerational transfer of wealth can deliver a range of opportunities. But in order to benefit, you need to plan for it.
