Advisers risk ‘destroying business wealth’ by ignoring next generation

Jenna Brown reports

Advisers who fail to build relationships with clients’ family members risk destroying the value of their business as wealth is passed on to the next generation, delegates heard.

Schroders intermediary solutions director Gillian Hepburn said it is essential advisers identify where client assets will flow upon client death, and for intermediaries to build relationships with likely beneficiaries now.

“Intergenerational wealth transfer is an opportunity, yes, but advisers need to think about the strategy they have in place,” she said.

She urged advice firms to conduct a full client audit to identify where assets will likely be distributed and make plans to engage with the next generation of clients.

“Advisers are really starting to engage with this. An audit is essential. I have seen huge activity in terms of looking at the business and what the challenges are.”

She added advisers were waking up to the fact that they could be running a “dying business”.

Hepburn said advisers who missed the opportunity “risk destroying the value of their business” as assets flow out of their control once their client dies.

“Think about the impact of intergenerational wealth on your business valuation. Are you potentially destroying the value of your business?”

Speaking at PA360 Digital, Hepburn’s presentation Intergenerational wealth transfer – opportunity or nightmare? identified that 64% of millennials (aged 24-45) expect to inherit about £50k, but that figure could be higher.

50% of business value lost

Hepburn also said people passing on the wealth really care about what happens to their hard-earned cash.

She said 60% of those passing on wealth were keen for their beneficiaries to see and adviser but only 9% had communicated that fact.

“It is a great opportunity for financial advisers – provided that inheritance is retained within the business. But advisers are largely ignoring this segment and need to engage differently.”

Hepburn urged advisers to undertake a client audit and identify how much of the assets the firm is managing are at risk of going elsewhere upon client death.

She said 15% of adviser practices had lost 50% of their value in 2016/17 when client wealth left the firm upon inheritance as they did not have an intergenerational wealth process in place.

Hepburn also said up to 65% of people change adviser when dealing with an inheritance so it pays in the long-term to engage with these people now: “If family engagement is high you are less likely to lose the money.

“This is not just about putting a millennial adviser in your business. You have to identify potential client attitudes, behaviours and beliefs. Look at the business in totality,” she told delegates.

Hepburn suggested assessing firm’s use of technology with a view to better engagement with millennials as well as establishing new service proposition for this segment. She explained their attitude to charging, investment options and technology will be different to their parents and or benefactors. Soft skills would be more important to this group, she added, as advisers engage with the wider family.

Hepburn said there were many opportunities to engage with other family members when giving advice and while some people were reluctant to discuss actual figures speaking about the concept of trusts, tax mitigation and later-life planning brought children and potentially grandchildren into the conversation.

She added the coronavirus pandemic may make having hard conversations with clients and their families slightly easier.

“Difficult conversations about mortality might be easier after what we have all been through with Covid-19. We have been faced with mortality day-in day-out so some of those conversations might be easier now.”