We are on the cusp of a major transfer of wealth from older generations, but the message from the PIMFA Summit 2019 is that the industry cannot simply sit back and wait for it to happen.
During a discussion on the issues surrounding intergenerational wealth transfer, former minister and current president of the Resolution Foundation, Lord Willetts said that while there is going to be a great transfer of wealth, the average age at which people inherit is 61. “The question is: how do we give young people the chance to build up the wealth that the Baby Boomers have?” he asked.
He was supported by Maarten Heukshorst, chief commercial officer at Pershing, who pointed out that the wealth inheritors face being saddled with the twin challenges of investment risks and the risk of a bear market – long before they will actually inherit their parents’ wealth. He suggested that, for many people, the present situation means that their “saving grace” will not be their pension, but rather their inheritance.
Lord Willetts agreed: “Saving becomes harder and inheritance is the answer.”
The financial planning industry’s role here appears to be critical. Educating Generation X, Millennials and Generation Z about the importance of financial planning – and getting them ready for the trickling down of their parents’ wealth – will have a significant bearing on the future of the financial industry.
As Heukshorst pointed out, “the moment people inherit wealth, they tend to change financial adviser”.
Matthew Cameron, managing director of LGBT Great, underlined this need for education, explaining: “No-one ever had a conversation with me when I was young about savings and pensions.”
Heukshorst picked up this theme, asking how we attract a generation without wealth into investments. “Successful firms lead with financial planning and look at what clients will do with their wealth even before they have acquired it.”
Holly Mackay, founder and CEO of Boring Money, suggested part of the answer here may be around how the industry markets itself – including how compliance is applied in practice. “We have to balance customer protection with what people see when they first go onto an investment website,” she said. “I liken it to going onto a holiday website and seeing warnings that you might die and there might be terrorists when you travel. People can see investments as akin to gambling because of all the warnings.”
Changing that mindset is a challenge facing the entire industry, and educating the generations that will be the future wealth owners is a critical part of tackling this issue.
The key will be to ensure younger generations are able to get involved and understand how to handle the wealth they will be inheriting, as well as being able to make good decisions about the wealth that they generate themselves.