In many ways, the baby boomer generation makes for model clients. Members of this group are wealthy, committed to the idea of saving and investing and also, importantly, trust those who advise them and act on their advice. But this deference is disappearing with every generation. The next generation are well-informed, tech savvy, but less trusting of authority. For future generations, it may not be enough to hand their money back after 30 years of accumulation, even if the adviser has done a great job.
Partly, this is a function of technology. These generations have access to real-time data on their bank accounts that they can access through their smart phones. They are used to moving money while drinking their coffee in Costa. Their understanding of financial platforms and products has never been greater. This is not a generation likely to be satisfied with an indigestible quarterly statement from a life company. They also expect advisers to adapt and make technology work for them.
Many advisers may justifiably ask why they would need to concern themselves with these, trickier, future generations. Pension freedoms have given them a rich client base of those aged 55+, in need of good long-term advice on drawdown and inheritance tax planning. For most advisers, this will see out their careers. These future generations don’t have the same level of wealth. Why try to adapt to their needs and preferences when there appears to be little short-term benefit?
It depends on the business an adviser wants to build. There will be those who simply want to wind down their client base ahead of retirement. However, for those who want to embed longer-term value, create a business attractive enough to be sold on or even help existing clients manage their succession challenges, getting to grips with the preferences of an informed consumer will be crucial.
It is not all ‘stick’, there is also significant ‘carrot’ in the transfer of wealth between generations. Around $4tn is expected to be passed down from boomers to millennials within a generation in the UK and North America, according to research by the Royal Bank of Canada. Helping clients manage this transfer and sustaining advice into the next generation represents a huge opportunity. If your business isn’t doing it, Amazon or Revolut may well spot their chance.
The solutions to managing these clients exist already. The next generation is well-versed in using platforms. We have seen forward-thinking advisers put solutions in place to keep the next generation of clients ‘warm’ at a time before they have much need of financial advice. We have seen advisers put the sons and daughters of their wealthy clients in an appropriate portfolio from a model portfolio service, charging a small flat fee for an annual update. In this way, they are an established, trusted provider when those children inherit their parents’ wealth. As long as it is on a platform, advisers can point to it as a future source of growth and revenue with potential buyers. In this way, it embeds value in their business.
To our mind, the right model portfolio service is crucial to support this type of approach. If investors simply see a lot of funds they could have picked themselves, or they can get through a robo platform, the value looks limited. The client experience will also be vital. Robos do not necessarily offer lower fees, or a better investment portfolio, but some win out on simplicity and a lack of jargon.
The next generation will be tougher for advisers, but they will need advice and they will inherit wealth. Solutions already exist to allow advisers to steal a march on the tech giants who might otherwise eat their lunch. Those who want to embed real value in their business should consider their options.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Investment does involve risk. The value of investments and the income from them can go down as well as up. The investor may not receive back, in total, the original amount invested. Past performance is not a guide to future performance. Rates of tax are those prevailing at the time and are subject to change without notice. Clients should always seek appropriate advice from their financial adviser before committing funds for investment. When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable.