The time is now for the wealth transfer conversation, research shows

Financial advisers who actively encourage clients’ children to be involved in the intergenerational wealth transfer conversation had higher retention rates, new research from Australian Ethical has shown.

Namely, 31 per cent of advisers who were involved in this process retained more than 75 per cent of their clients, more than twice the retention rate of those who didn’t (14 per cent), according to the ethical investment manager.

With an anticipated $3.5 trillion dollars set to be transferred from Baby Boomers to their children and beneficiaries over the next two decades, it’s noteworthy that according to the research, two-thirds of advised clients are in fact Baby Boomers or older.

Moreover, the research revealed that 61 per cent of advisers have clients who have already transferred wealth to their children or are in the process, with many wanting to begin the process while they’re still alive.

The research also uncovered that nearly half of the wealth transferred to children and beneficiaries is consumed almost immediately – going towards personal debt, mortgages, and luxury or self-care items to support their current lifestyles, while the remaining half has the potential to be reinvested.

Commenting on the findings, Australian Ethical’s head of client relationships, Leah Willis, said the time is now for advisers to adopt a proactive approach to engaging with the next generation.

“There’s an advantage for financial advisers in engaging early on with beneficiaries, and to help facilitate the intergenerational wealth transfer,” Ms Willis said.

Namely, the research underscored that the predominant strategy advisers intended to employ was facilitating conversations with clients and their families, accounting for 47 per cent. Following closely, 40 per cent indicated direct engagement with current clients.

Nevertheless, a concerning finding revealed that a significant portion of Australian advisers, nearly one in five, reported having no current plan for managing generational wealth transfer in their business, putting them at risk of falling behind.

“Advisers are going to be increasingly called on to meet the needs of their clients’ children and beneficiaries, who may have different values or greater focus on responsible investing than their parents did. It’s critical that advisers can have these conversations,” Ms Willis explained.

The report added that a further incentive for these conversations is the strong likelihood that clients will recommend their own adviser to their children.

Namely, high-net-worth clients would almost unanimously (97 per cent) recommend their adviser to their children in the future, while more than three-quarters of core and mass affluent clients were likely to do the same.

Responsible investing advice key to intergenerational wealth transfer

Australian Ethical noted that staying ahead of client needs has consistently been a crucial factor for success, especially as responsible investment options for the next generations of investors gain importance. Remarkably, this has emerged as the primary expectation Australians have for financial advisers, surpassing even the priority of maximising investment returns.

As such, 64 per cent of consumers now expect financial advisers to be knowledgeable about responsible investment options, according to the investment manager.

“This comes not only with the expectation that advisers are able to offer these options and are able to demonstrate a strong understanding of the benefits that responsible and ethical investing brings to a professionally managed investment portfolio,” the report said.

Coming in third for client expectations was the consideration of consumers’ values when devising investment options (50 per cent).

“While Baby Boomers are focused on the preservation and orderly transfer of the wealth they’ve built over their working lives, their children and beneficiaries will inherit these assets with new objectives and be guided by a distinctly different set of values,” Australian Ethical added.

Accordingly, 52 per cent of advisers agreed that advice practices that demonstrate a strong understanding of responsible investing will also be able to attract younger clients.

Similarly, of those that initiated a wealth transfer conversation, advisers who incorporated responsible investing into their offering reported higher client satisfaction (73 per cent) than those that didn’t (62 per cent).

“Responsible investment principles are going to be part of conversations going forward, and being able to understand younger generations’ values and drivers is going to become increasingly important in attracting younger clients,” Ms Willis noted.