Mastering intergenerational wealth transfer conversations with clients
In today's rapidly evolving financial landscape, the dynamics of wealth are significantly different from those of past decades.
Research from Pew highlights that while 68 per cent of Millennials are earning more than their parents did at the same age, elder generations were earning 84 per cent more than their parents. This shift underscores the necessity for financial advisers to prioritise intergenerational wealth transfer conversations, adapting to new economic realities shaped by inflation, interest rates, and the rising cost of living.
While much is spoken about the future of this wealth transfer, the reality of our experience is that this transfer has already started. While this is a big step change for your clients, it is very relevant for an advice business and individual advisers. Growth is essential in an environment where the average age of a client is pushing towards age 60.
Understanding the changing landscape
The World Economic Forum found that only 34 per cent of adults are financially literate, yet children develop their spending and saving habits as early as five years old. Additionally, at Findex, our own research tells us that those Gen Z and Millennials who discuss financial matters with family, possess a better understanding of debt management (47 per cent) and reduction (34 per cent). For us, these insights underscore the critical need for early and ongoing financial education within families.
Building a foundation of trust
To facilitate effective wealth transfer discussions, advisers must establish a foundation of trust and confidentiality. Findex research also shows that Gen Z often fear judgement of their financial habits, with 92 per cent of Gen Z and Millennials agreeing that financial advice empowers them to have more knowledgeable family conversations.
However, a significant percentage have never received professional financial advice—83 per cent of Gen Z and 52 per cent of Millennials.
Advisers can mitigate these fears by creating a safe, non-judgemental environment for clients. Emphasise that the role of a financial planner is to support, not judge families as they navigate complex financial decisions.
Investing the time in the early stages of the relationship to understand what drives their behaviour and decision making will help clients feel more comfortable discussing sensitive topics like wealth transfer.
Deeply understanding client goals and values
Our research also tells us that while 88 per cent of Australians have family finance conversations, 31 per cent of Gen Z feel uncomfortable during these discussions. With cost of living, and in particular cost of housing on the rise, the 'bank of mum and dad' trend increasingly necessitates intergenerational conversations to set realistic expectations, boundaries, and goals.
Advisers can assist with these dynamics by assisting both generations in understanding their current position, their options and most importantly the implications of their decisions. While it can be a delicate balance, working with both generations reduces the risk for everyone, and will open the door to an environment where clients feel comfortable discussing sensitive topics like wealth transfer.
When we meet any client, we are searching for a deeper engagement. We want to try and understand what drives our clients, what really matters to them. Typically, we find they are looking for us to do four things:
- Know them
- Know their family
- Respect what they have accomplished
- Comfort their decision
Spend time understanding clients' personal values, family dynamics, and financial objectives. This might involve private discussions with parents and grandparents about their financial situation and wealth transfer plans, followed by broader family conversations including children and grandchildren.
Initiating early and facilitating discussions
Early initiation of intergenerational wealth transfer conversations is crucial for long-term planning. Mapping out individual goals and timelines can help clients visualise how their financial futures intersect with those of their family members.
Given what we know from the World Economic Forum, starting as early as possible is also likely to be important in driving long term success. Therefore, empowering parents and grandparents to teach children basic financial concepts such as budgeting, saving, and investing is crucial – so keeping abreast of strategies to support financial literacy for young children in the face of an increasingly cashless society is also a useful string to have in your bow.
For instance, introducing virtual piggybanks for receiving birthday and Christmas money can familiarise children with digital payments and early saving habits. For older children, a digital allowance system with savings and chequing accounts provides practical insights into personal finance management.
Balancing short-term and long-term goals
When advising families with adult children, balancing short-term financial goals with long-term aspirations is vital. Discussing and defining key milestones for each life stage ensures financial planning remains adaptive and aligned with evolving family needs. Advisers should emphasise that sometimes, the best strategy might not always be the long-term one.
Encouraging ongoing conversations
Financial discussions should continue beyond initial consultations. Cost of living pressures, rising interest rates, and persistent inflation impact all generations, making ongoing financial conversations crucial. Advisers should encourage clients to establish a rhythm for periodic reviews and updates of their plans, particularly as adult children start their own families or make significant financial decisions.
Intergenerational wealth transfer is not just about passing on assets; it's about imparting financial wisdom and fostering a legacy of financial literacy and security. By understanding client goals, building trust, and facilitating open conversations, financial advisers can play a crucial role in helping families navigate the complexities of wealth transfer, ensuring that future generations are well-equipped to manage their financial futures. Not only does matter for your clients; it also matters for the future of your advice business.
Jonathan Scholes is head of client – wealth at Findex.
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