Next generation needs

“Inter-generational wealth transfer” sounds like half-demographic, half-economics jargon, but for all its clunkiness, it is a term no adviser can afford to ignore. The term describes the transfer of wealth from one generation, the Baby Boomers (roughly, those born between 1946 and 1964) to the next two generations, Generation X (born 1965 to 1979) and Generation Y (born 1980 to 2001).

Happening across the developed world, this is nothing short of the biggest transfer of wealth between generations in history.

According to consulting firm Accenture, Generations X and Y stand to inherit $US30 trillion in assets in the coming decades. In Australia, an estimated $2.4 trillion will be passed down from Baby Boomers over the next three decades.

Is it a trap?
For advisers, this represents a conundrum: a massive opportunity, but also a trap. If your practice only focuses on high-net-worth clients – pre-retirees and retirees – the dilemma is that while this clientele holds the wealth now, it will not forever. Such clients effectively have a use-by date.

Which means it’s time to start having conversations with the next generations, who will receive the wealth. The adult children of the current pre-retirees and retirees represent the next wave of ‘wealth accumulator’ clients coming through. For advisers, the key is that these adult children – although they are set to receive a windfall inheritance – may not ever have had financial advice, and may in fact not be hugely financially literate.

Starting conversations around how the adult children will handle that wealth can give you the chance to become the kind of multi-generational family partner that many say they aspire to be – and in so doing, ensure the future of your business and the succession plan for professional staff.

A conversation starter
There are potentially many opportunities to start these conversations. Helping a client to prepare for receiving an inheritance can give you the chance to assess your client’s understanding of the asset classes and investment markets, and the importance of asset allocation – and start the education process, if this is needed.

There may be scope for the adviser to help with big-ticket items such as education and house purchases for the inheritors’ children, but also for creating their own retirement benefit. The client (or their children) may have a particular immediate need, such as a house deposit, or simply want to accelerate their wealth accumulation. This is where specialised tools such as gearing products and conversations around effective debt utilisation may be relevant.

Developing the next-generation wealth-accumulator clients also gives the adviser plenty of opportunity to develop the wealth protection and estate planning parts of their business. In time, the cycle can repeat itself, as Generation X passes the wealth to Generation Y.

The key to this kind of multi-generational planning is not to focus on where the wealth currently is, but where it will be in the future: and to understand that all the generations in the chain need to be wealth accumulators.

It’s all about investment
Advisers must be prepared to look honestly at how their business faces clients, because Generation Y expects more from the services it uses. If your business is not set up for digital-friendly interactions – through social media, online portals, or mobile devices – the opportunity could pass you by.

Generation Y wants to access information when and where they want, on any device they want – and they are used to comparing their experiences with others. If your business relies on face-to-face interaction and paper documentation, it might not make the grade. The service model that suited Gen Y’s parents and grandparents may need to evolve to meet its unique perspective – advisers need to be bold to make this switch.

Starting the conversation with the next generation may require a different way of thinking, but it could be the best investment your business ever makes.

This information is correct as at 05 July 2016.