Baby boomers and the silent generation are set to pass on $72.6trn to their heirs by 2045 in the biggest wealth transfer in history, but advisers are greatly unprepared, according to new research by Octopus Investments.
It found that 69% of advisers have no plan in place to tackle this colossal transferal facing the industry. Of the $72.6trn to be handed down over the next 20 years, the Kings Court Trust predicts that advisors will only capture £5.5trn of it, marking a missed opportunity.
Octopus’ head of investment products Jess Franks said: “We are on the cusp of a seismic shift as the great wealth transfer occurs in the next couple of decades. There is a clear generational divide, both in how advisers are engaging with clients’ beneficiaries, and in perceptions of the value of advice amongst younger generations.”
Advisers are likely to miss out of the biggest wealth transfer in history because they do not have a relationship with the heirs of their clients’ wealth until after their passing.
Octopus found that the vast majority (84%) of advisers are only in contact with one generation of their clients’ family, meaning their heirs are likely to sever ties once their relative has passed.
“It might seem like an obvious point, but you don’t want the first time you meet your client’s beneficiaries to be when your client has passed away,” Franks said. “Depending on the age of the client, you’ll want to start building the relationship with their beneficiaries now.
“Help them understand the planning you are putting in place. Prepare them for the wealth that will come to them. The more engaged they are now, the more likely they will seek your advice when they inherit.”
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There is also a divide between advisers’ perceptions of younger beneficiaries and what those clients want, Franks added.
Octopus’ survey found that half of advisors thought younger generations were less interested in their finances (48%) and don’t see value in having an adviser (46%). Most advisers (68%) also thought that younger beneficiaries would rather spend their inherited wealth rather than invest it.
But this juxtaposes with what investors themselves said, with 79% of them saying they would invest their inheritance.
Advisers and beneficiaries also disagree on fees. More than half (54%) of investors think advisers should have different payment structures for different generations. This increases markedly to 73% when the asked if those aged 18-34 should be charged differently.
Yet only a fifth (22%) of advisers are willing to use different fee structures for different generations, widening the divide with younger generations.
“Getting intergenerational planning right is key to protecting the value of your business,” Franks added. “Estate planning is a natural opportunity to deliver great outcomes for clients and unlock the chance to work with the next generation.”
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