There are many issues associated with intergenerational wealth and the challenges financial planners face in retaining wealth across their baby boomer clients and their heirs.

    To understand these issues further, we carried out some research to find out more about what baby boomers want from the advice profession and the wider financial services industry, and how this differs compared with what the next generation of clients wants.

    We based our research on a survey of 212 consumers, evenly split between men and women and those who fall into the millennial age bracket (aged 22 to 37) and baby boomers (aged between 54 and 72).

    What we found was a number of key hurdles the financial services industry needs to address to ensure that not only the coming intergenerational wealth transfer is managed effectively, but also that where there an adviser/ client relationship exists, this remains intact.  

    It’s clear millennials want to review who they engage with, and they will not automatically choose to use their parents’ adviser. They will entertain digital solutions first and foremost because, let’s face it, they are digital consumers extraordinaire with particularly high smartphone and app usage.

    Millennials also have different financial challenges, such as getting a foot on the housing ladder, university fees and worrying about taking care of their parents. 

    The question is: who is going to be around to serve them? With the average age of advisers at 57, there may be a lack of motivation among some firms to engage the next generation.

    Many advice firms are preparing for mergers or acquisitions or leaving the sector completely. There is only a small percentage who want to leave a legacy to trusted employees.

    Yet there are encouraging signs, such as the NextGen Planners movement. This is proving the profession can attract younger talent, who are perhaps offering specialist services to engage millennials with their particular financial needs. 

    With all that in mind, it’s worth taking some time to examine the evolving needs of both baby boomer clients and those of would-be millennial clients.

    What baby boomers want and need 

    With average life expectancy on the increase, our research found that baby boomers are concerned about three key issues: tax, long-term care and running out of money in retirement.  

    It’s clear they also want control over how their wealth is distributed. They want to provide gifts while they are alive, and are keen to influence how these gifts are made via the institutions and/ or charities that are important to them. This means millennials are less likely to inherit all the wealth. 

    They are also comfortable with an adviser-led model. Baby boomers appreciate professional advice but they are also open to using digital services to help manage their financial needs.

    Engage table 1

    Engage table 2What millennials want and need

    Starting with concerns for their financial present, millennials want to be able to afford to buy a house ahead of then saving for the future. 

    There are also concerns around longevity, where they may take some of the brunt of responsibility for meeting the cost of their parents’ health care needs. It’s why we refer to this generation as ‘squeezed savers’.

    Millennials are not afraid to question traditional advice propositions. If advice firms want to retain wealth, alternative services need to include digital tools such as apps and/ or automated advice.

    Otherwise the likes of Revolut, Starling, Atom and Monzo in the digital banking space, and robo-advisers such as Plum, Wealthify, Wealth Wizards, Nutmeg or artificial intelligence (AI) chatbots such as Cleo will continue to attract more market share. 

    It’s clear millennials have an unhealthy view on risk and return. It may be that the 2008 financial crisis hasn’t helped, but a heavy emphasis on cash savings will not help them meet their longer-term challenges and goals. 

    Engage table 3

    Flexibility is required within product design to allow some access to funds through their financial journey, which could help meet short and long-term financial pressures. 

    The focus on service propositions is definitely digital, yet interestingly there is still a desire for the human touch.

    Engage table 4

    Some things to consider

    Adviser business models tend to favour accumulation and a transactional relationship. There is no doubt that baby boomers tend to prefer advice at specific times in their life journey.

    If a firm’s business model is too rigid, they may well struggle to adapt to the new digital and more flexible requirements of millennials.

    It’s worth considering how you can engage baby boomers’ heirs with a service that matches their values.

    Advice should be based around lifestyle needs rather than products, and services could look to include digital tools and apps such as cashflow modelling, and integration ‘impulse’ and ‘round-up’ savings apps and mobile banking.

    End-to-end services that make it easy to invest, save and plan are in vogue with millennials in particular, so any service proposition looking to target this group needs to provide seamless support.

    Client segmentation may prove to be challenging as people are complex. Typically, firms have split their services across transactional asset segments (for example gold, silver and bronze) yet behaviour, personality and decision-making now need to be taken into account.

    Indeed, the new product governance rules mean that firms need to ensure their approach to client segmentation reflects their target market, with products and services to meet particular objectives and needs according to things like type of client, their level of knowledge, and capacity for loss.

    Given that both baby boomers and millennials want some form of fintech within their advice and planning journey, we can see a need for firms to re-address their service proposition and think creatively to build and implement engaging services that capture key advice requirements and time points.

    You may also want to look at integrating your systems to help ensure clients’ children both stick with the advice service on offer and to allow for wealth to flow down the generations. 

    Blending existing technologies such as client portals and cashflow modelling, as well as offering new technologies such as AI and click to call as they more become widely available, will provide great business benefits.

    Designing your service around client needs and helping them to navigate inheritances and their financial decision-making behaviours, helping them to overcome their financial fears and offering family estate planning at scale should all prove to be useful as well.

    It’s all about matching the needs of both baby boomers and millennials. For the first camp, this may be achieved through building partnerships with accountants and solicitors for services such as wills, trusts and long-term care planning. For the millennials, engagement may come through an auto-investment app.

    Overall, the key thing is to plan now. By taking the time to put in place a coherent strategy to engage both your existing clients and their heirs, this will undoubtedly give you a competitive edge and provide your business with a stronger footing for the future.     

    To download the full report on The Great Wealth Transfer, click here

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