Advisers lacking formal wealth transfer strategies
Praemium research has uncovered that less than one in 10 financial advice practices have a formal wealth transfer strategy.
The investment platform’s Wealth Across Generations report – in collaboration with Investment Trends and CoreData – discovered just 8 per cent of advice businesses have a formal, documented intergenerational wealth transfer strategy in place.
Instead, most practices are relying on informal strategies to address the incoming $3.5 trillion wave of assets being handed down by the end of this year.
This is despite one-third of high-net-worth (HNW) investors having already begun their wealth transfer journey, up from 25 per cent in the previous year.
“While many advisers recognise the importance of the intergenerational wealth transfer, there is still a way to go for the sector to adopt more formalised strategies to manage and facilitate these wealth transitions,” Praemium wrote.
“The upside in doing this is that advisers can provide the best service and advice for their clients, with the end goal being a smooth wealth transfer, preserving assets and keeping the family intact during the transition, and increasing the chance of successfully retaining the next generation of clients post-transfer.”
Developing a formal strategy involves early client engagement, facilitating family conversations, and understanding suitable products and investments to ensure comprehensive wealth transfer management.
Namely, 80 per cent of advisers with a wealth transfer strategy are focused on facilitating family conversations, while 83 per cent of advisers with a strategy prioritise early client engagement.
Some 31 per cent of advisers who have a documented plan focus on educating clients about products and investment options to boost their financial literacy.
“Advisers need to address the emotional and financial obstacles that can develop as wealth starts to flow from one generation to the next. Effective wealth transfer hinges on early engagement with both primary clients and their beneficiaries, building trust and confidence with clear strategies for wealth transfer while considering family dynamics,” the report continued.
According to Natixis Investment Managers, 46 per cent of advisers across the globe said the intergenerational wealth transfer represents an existential threat to their business. Some 43 per cent are also concerned they will not retain assets from clients’ spouses or next-generation heirs.
To address these concerns, Capgemini explained it is critical for firms to actively work with the younger generation in order to increase the likelihood of retaining assets after the death of an older client.
This can include hiring younger staff who can strengthen personal connections with the next generation and better understand their needs, enabling them to position themselves as trusted advisers.
Meanwhile, Natixis noted other key retention strategies such as offering ancillary services including family trusts, providing personalised services including networking events, and even offering financial boot camps for next-generation heirs.
AUTHOR
Jasmine Siljic
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