Advisers in prime position for the great transfer of wealth

According to a new report titled, Rainbow’s End, produced by Fidelity International and independent research firm MYMAVINS, many Australians aspire to share their wealth with their loved ones but lack the necessary plans and knowledge to do so effectively.

“We have heard from 1,500 Australian voices, representing Gen Y, Gen X, Baby Boomers and the Silent Generation; a cross-section of everyday Australians. We have explored their expectations and discovered that while most people aspire to leave a financial legacy, far fewer have made reliable plans to do so,” said Simon Glazier, head of wholesale sales at Fidelity International.

“For many older clients, planning their legacy is a primary focus, and service offerings will need to evolve from retirement planning to estate planning to ensure their wishes are fulfilled. As it is now, a lack of financial confidence, uncertainty around retirement spending requirements and how to best organise legacy plans can become barriers to effective decision making.”

With Productivity Commission modelling showing that Australia is expecting to see $3.5 trillion pass from the older generations to younger generations this decade, the report found that around 40 per cent of people prefer to share their wealth as a living legacy, compared with around 20 per cent who prefer to just share their wealth as a bequest. Almost 60 per cent plan to leave behind their superannuation savings to their loved ones after they pass away.

Of those with plans in place to transfer wealth to younger generations, over 75 per cent think financial advisers should play a role in teaching the next generation financial literacy.

Mr Glazier said that financial advisers are in the box seat to make the most of the opportunities.

“There is clearly a need for professional support and financial planning can play an important role here as it can help investors determine how much wealth is needed to achieve financial legacy goals and planners can also work between family members to ensure legacies are transferred fairly and as efficiently as possible,” he said.

“In the traditional financial planning process, estate planning plays an important but peripheral role. Legal instruments such as wills and powers of attorney are important, but the successful transfer of a lifetime’s wealth while preserving family relationships requires more careful planning than that.”

Writing in the report, Financial Advice Association Australia chief executive Sarah Abood echoed this sentiment.

“For financial advisers, this trend represents opportunities as well as threatening existing practice models. Advice clients are ageing and as they turn their minds to their financial legacies, they need help in ways they haven’t needed before,” Ms Abood said.

“The younger generations receiving the money need advice, too. The good news is that while much of the transferred wealth will go to the repayment of debt, the next generation of potential clients is clearly open to receiving advice.”

The good news for advisers is that the research found that Gen Y “will prove to be excellent clients of financial advisers” thanks to a more collaborative approach to making financial decisions, while also being more open to learning from their adviser.

Looking at the preferences of different generations when it comes to guidance on managing their finances, there is a clear divide between younger and older clients. While 38 per cent of Baby Boomers prefer to do it themselves, the same is true for just 18 per cent of Gen Y.

On the other hand, 44 per cent of Gen Y prefer to be involved but need guidance, such as from an adviser, while just 23 per cent of Baby Boomers said the same.

“This is a proof point around why Gen Ys make really good advice clients, because they need guidance. They recognise the fact that they need guidance. They can’t really do it themselves completely on their own,” Mr Glazier said.

“Which is a shift from where we are today and the Baby Boomer generation, they prefer to do things themselves.”

Almost 90 per cent of Gen Ys are interested in learning more about finance, compared with just half of Baby Boomers.

“Around four in five Gen Ys believe that financial advisers should play a role in teaching the next generation financial literacy, and only one in 20 think it’s not the financial adviser’s role to teach the next generation,” the report said.

“The older generation’s closed mindedness to learning extends beyond themselves. Only three in five Baby Boomers believe it’s the financial adviser’s role to enhance the next generation’s financial literacy, and one in five think that it’s not.”