Intergenerational wealth transfer – the next generation of advice

Renato Mota, General Manager, Distribution 

Renato Mota

Australia is standing on the cusp of the greatest wealth transfer in our history

With the baby-boomer generation representing just 25 per cent of population yet holding more than 55 per cent of all private wealth in the country1, what is a trickle of wealth transfer today will, over the next 10 to 15 years, snowball into billions of dollars every year.

This wealth transfer represents one of the greatest opportunities – and greatest challenges – for financial advisers. With estimates of between 80 to 90 per cent of advisers losing some or all their managed assets when a client dies, a key driver of success for advisers will be maintaining continuity of advice to the next generation and capitalising fully on this wealth transfer.

Preparing for the next generation

While managing wealth transfers for your closest clients may be straight forward, opportunity lies in the sheer number and size of wealth transfers expected in the coming years.

To take advantage of this, advisers should build estate planning scale. That is building the skills to quickly and efficiently handle this growth in wealth transfer and estate planning needs.

Specialising in advice on assets which traditionally have a high rate of attrition between generations may create a niche advice reputation for your practice. It's an important niche too, as around one-third of the total financial assets of Australians aged 55 to 74 are outside the family home, and as these assets move, often they are lost or squandered.

And don't wait. While the next generation aren't necessarily a profitable demographic today, they will be the foundation of your practice tomorrow. And as there are two sides to every wealth transfer, establishing your practice as a specialist adviser for recipients of intergenerational wealth transfers represents more opportunities.

Reinvent the communication

The way you interact with Gen X and Gen Y will also be very different to their baby boomers parents. Technology now plays a large part in everyday life, whether it's Facebook or Instagram for friends, Uber for taxis or even Tinder for dating – all creating an on-demand mentality.

With just six per cent of Gen Y favouring traditional advice methods, to meet new expectations advisers should explore new service delivery methods, including new product offerings, flat fees or fee aggregation and the bundling of services, such as insurance and debt management into a single life-stage model on top of wealth transfer advice.

If you've been the client's adviser for a long time, consider a person of an equivalent age to the next generation to be adviser to help manage the relationship. With the average age of a financial adviser in Australia currently around 552, this will also help succession planning.

Plan to succeed – but prepare for failure

Having the conversation and implementing the strategies shouldn't be where the advice ends. There is no guarantee of success, and indeed studies indicate that more than half intergenerational wealth transfers fail – and by the third generation, often completely.

So while every wealth transfer strategy is designed to succeed, it is prudent to prepare for failure as, just like lottery winners, 'sudden wealth syndrome' can afflict family members.

There is no one size fits all solution to having a wealth transfer practice – what is important, with the technical skill, is the preparedness to have sensitive conversations and build trust across generations.

It will be a challenge, but with so much at stake, it's an opportunity too big to ignore.

1  Mcrindle research: Australia in 2020: A Snapshot of the Future
Other sources: Accenture: The "Greater" Wealth Transfer

The information contained in this newsletter is provided on behalf of the IOOF group of companies and is intended for financial adviser use only. It is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. Any examples are for illustration purposes only and are based on the continuance of present laws and our interpretation of them at the time.