The ‘great wealth transfer’ is coming

The largest generational transfer in wealth is imminent – are wealth managers ready, asks Arun Kakar

The next twenty years will herald the largest ever intergenerational transfer of wealth – and financial advisers are underprepared. According to research from Sanlam and an analysis of ONS population data , some 5.1 million UK citizens aged 25-45 are expecting to receive at least £50,000 in fixed assets or money in a total transfer of £1.2 trillion that’s set to take place over the next 30 years.

Despite the large opportunity this presents to financial advisers, the report from Sanlam shows that the industry is riddled with uncertainty about appealing to this emerging cohort. While four in five advisers acknowledged that that the shift in wealth was the greatest opportunity for their sector, two-thirds reported that they are not taking any steps to ‘proactively engage’ with it. Some 91 per cent said that they didn’t think that under-45s were getting ‘adequate’ financial advice.

It is perhaps understandable why this infrastructure doesn’t yet exist fully – the transfer of wealth is yet to take shape – but concerns are beginning to emerge. ‘It’s a very British trait to avoid conversations about money and the sensitive subject of when parents or grandparents will pass away,’ said Sanlam UK wealth business CEO John White. ‘However, the absence of these discussions is leaving clients and their families in limbo.’

These issues are more pointed in family offices, where another wealth report by UBS and Campden Wealth last year revealed that just 32.7 per cent have a written succession strategy in place and a further 14.6 per cent are relying on ‘verbally agreed’ plans.

Through interviews with family offices, Sanlam found that the culture and values that families foster are seen as far more important than any economic transfer. Beneficiaries are typically educated on the cultural and financial aspects of the family and its approach to self-governance, a sentiment echoed in the UBS report which found 57.1 per cent prepare for the wealth transfer with work experience in the office.

That’s not to say the way family offices are continuing to spend their money in the same way as before. In fact, they have become increasingly active in private equity and are beginning to resemble pension funds in terms of their strategy.

Facilitating this transition will involve integrating the concerns of the younger generations into the advisory service. Issues such as ESG and impact investment are pointed to as areas that are increasingly of interest among HNW millennials, and advisers will be challenged with bridging these new directions, as well as family politics.

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‘Dialogue is the first step to facilitating the smooth transition of wealth between generations, and many families cite the importance of lessons the elder generations can offer the younger in preserving wealth,’ says the Sanlam report. ‘Most often quoted in these interviews is the notion of forgetting history at your peril – wealth can disappear in a very short space of time and beneficiaries should learn the difference between entitlement and privilege.’

Technology will undoubtedly play an increased role in advisory. Some 40 per cent of advisers surveyed by Sanlam view it as the single biggest threat to future prosperity, and 45 per cent said that they didn’t engage with younger generations because ‘they believe they are more likely to trust science or model-based advice than traditional human advisers’. This is likely to alter, not eradicate the relationship between advisers and family offices.

Larger family and multi-family offices that operate across jurisdictions are unlikely to find their sophisticated needs addressed solely by a robot anytime soon according to the report, which says technology will continue to provide increased support to the process.

Family offices exist mainly for the facilitation of wealth transfer, and are increasingly embracing innovation and alternative investment strategies as they become a more prominent force in the investment landscape. Perhaps it is time that advisers in the private client sphere began to do the same, before it’s too late.

Arun Kakar writes for Spear’s

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