This week I had the pleasure of having a conversation with Jonathan Polin (JP), UK CEO at Sanlam, to talk about their recent research into intergenerational transfer of wealth. The resultant report, ‘The Generation Game’ summarises the research undertaken with three different cohorts:

» over-55s with investable assets of £100,000 who are leaving their children and grandchildren inheritance;

» people aged between 25-45 who are expecting to receive at least £50,000 in inheritance; and

» 200 UK-based independent financial advisers.

 

Report highlights

» Almost two-thirds (64%) of 25-45 year olds expect to receive inheritance from their parents and grandparents

» Nearly a third (29%) expect to receive at least £50,000 with the average expected value of £233,000

» Almost a third (31%) of those expecting a substantial inheritance admit to putting off saving and ‘living in the now’ because they have a windfall coming

» A similar number (34%) say they will be reliant on this inheritance for their financial security in future

» 45% of advisers polled say potential younger clients are more likely to trust the science of model-based advice rather than human

» ‘Robo’ advice was seen as the biggest threat to their firms by 40% of advisers surveyed

 

DISCUS. Jonathan, this is a significant piece of research, what prompted Sanlam to undertake it?

JP. The research highlights an issue which affects many people in the UK but is also quite personal to me. Having a two children in their 20s who at some point will inherit some money, I started to consider how they would manage it, what would they do with it and where would they get financial help?

Many people in the UK now have wealth by accident. They have property which has increased significantly in value, there has been a lengthy bull market, they are probably the last generation to benefit from defined benefit company pension schemes and now the Pensions Freedom legislation gives them access to that cash.

The pot of disposable wealth is greater than before – within the next twenty years we will see the largest ever intergenerational transfer of wealth, where trillions of pounds worth of assets will be passed down between generations.

Whilst there is a lot of research available in the market, there was none that looked at the three key audiences in this story, the ‘donors’ passing on wealth, the ‘beneficiaries’ receiving it and then those who can help clients to manage the transfer (financial advisers, lawyers and wealth managers).

 

DISCUS. We have identified some of the key findings but are there others which you think are of specific importance to financial advisers – and if so why?

JP. Firstly, the average age of our own clients within the DFM business is in the early 60s and we lose around 5% of those each year through death. If we don’t engage and try to have a connection with the younger members of the family then we are likely to lose these assets as research shows that the family will often go elsewhere. The same challenge applies to financial advisers.

90% of advisers surveyed said that people under 45 are not getting financial advice and 76% of those under the age of 45 said that they would only look at getting financial advice at the time of receiving their inheritance.

It’s therefore important to have conversations with clients which involve the wider family and these should be outcome orientated – ‘What is the money for?’

There are key questions clients ask:

» How much do I need to save for my pension in order to enjoy and sustain my retirement?

» How do I invest to receive an income?

» How do I leave a legacy?

Families are not talking about inheritance. 38% of under 45s set to receive inheritance haven’t spoken to the person gifting the money. Equally the ‘donors’ are concerned about the financial security of their children. They want to help with mortgages for example and know that their kids are likely to need financial help at some point. However, 61% of over 55’s interviewed said that the younger generation isn’t getting adequate financial advice.

At Sanlam, we would be failing in our responsibility if we didn’t bring all this to our client’s attention and financial advisers should be doing the same.

 

DISCUS. So what key changes do you envisage to address these challenges?

JP:Advisers need to have conversations about this and become the trusted partner not just of the client but of the family.

We also need to ensure as a provider that we deliver appropriate products and services. For example, how can we engage the younger generation and use digital interfaces to help to build credibility with the millennial generation?

We also need to move more to providing multi-asset and outcome oriented investment solutions to meet customer requirements. Measures should be based on projections and not benchmarks to help the client understand whether they are on target, what help they need and how they might use different pots of money. It’s about building a financial plan that’s more enduring and developing and maintaining a relationship with those who will benefit from this wealth – ensuring they won’t mess up when they receive it!

 

DISCUS. The perceived level of threat of ‘robo advice’ to financial advisers was interesting, what’s your view on this market?

JP. We know that lots of people can now do it themselves online and via APPs etc. Businesses like ours need to offer a range of options and technology delivers a great opportunity to give online capability to clients. However Sanlam aren’t going into the D2C ‘robo’ market – we don’t have the appetite for it – or are prepared to spend tens of millions trying it out! But we do need to deliver functionality for clients and their family to let them choose when they want to take advice.

40% of advisers saw ‘robo’ as the biggest threat to their business. We see Fintech as providing opportunities to engage customers and whilst financial services are undergoing substantive change, at time, the human touch is still key.

However, whilst 4 out of 5 advisers saw intergenerational transfer of wealth as the greatest opportunity for their sector there are definitely actions which they can take to ensure that this is translated into reality.

Jonathan, thank you for your time. Readers, if you have your own thoughts to add, please comment in the space below.