An article published by the Financial Times
Prompted by a growing demand for intergenerational planning among clients, wealth managers are moving away from offering purely financial advice to a more holistic and emotional approach to their work.
With an estimated $4tn expected to be passed down within a generation in the UK and North America alone, according to a wealth transfer report by Royal Bank of Canada (RBC), private banks are ramping up their services to compete to retain the attention of the children of wealthy families and entice millennials to sign up.
Typically, a wealth management company’s assets under management go down when a client passes away and money is dispersed among the next generations. However, research suggests that wealth planners and advisers are making much greater efforts in the search for something to provide a “stickier relationship” with families.
Data supplied to the Financial Times by Wealth-X highlights the sharper focus being placed on succession planning. This includes examples of wealth managers launching global seminars on passing on wealth, more introductory meetings for clients’ families and an increase in financial education seminars.
RBC says there is growing demand from clients to involve their children in the wealth management process from an early age, citing a desire from clients that the next generation “learns before they earn”.RBC’s wealth transfer report found that 53 per cent of parents said educating their children on wealth and money topics was a priority for them, while a further 33 per cent said it was among their future goals to do so.
Ross Jennings, managing director, UK sales and relationship management at RBC, says: “Acknowledging the changing requirements of an increasingly modern and diverse generation of clients and designing wealth management strategies that fulfil these needs are the most important ways that wealth advisers can help with managing the vast amounts of wealth set to be transferred by 2020.”
As such, financial education is set to play an even bigger role at RBC moving forward. “On average, people in the UK receive their first inheritance at the age of 28 and while the majority may have conducted their own research to improve financial literacy, there is still a significant proportion of the next generation with gaps in their knowledge when it comes to managing inheritance,” says Mr Jennings.
“We aim to get more members of the family around the table from an early stage in our relationship with clients, ensuring that the next generation is engaged with ways of managing wealth so that when the time comes that they are responsible for nurturing it, they have the tools to be able to do so effectively.”
Stonehage Fleming also says succession planning is “integral to its position” in response to the Wealth-X survey. It reports that it is hosting regular client forums where families discuss common themes and issues they face in establishing an intergenerational strategy. It is also developing a number of tools to help families manage their risk.
Matthew Fleming, a partner at Stonehage Fleming, says succession planning is the most important tool of long-term risk management.
“It does not guarantee the preservation of wealth through the generations, but it can and does improve the chances that the wealth will survive,” he explains. “Each individual family has a unique culture which can be thought of as an amalgam of beliefs, values, practices, norms and ideas. These are what help drive a family’s strategy.”
He says it is important to understand these values and collectively agree the purpose of wealth with the client. “Asking the question ‘what is it all for?’ is an exercise which provides many benefits, especially to those who are beginning to plan the transition to the next generation,” he says.
Consideration must also be given to whether to leave guidance on how wealth should be used and managed. Mr Fleming says that at one extreme, there are entrepreneurs who want to leave nearly all their money to charity to encourage their children to generate their own wealth. At the other, are families trying to create 200-year trusts with guidelines for distribution across the next eight generations.
“In our experience,” he says, “families that navigate wealth transfer positively are those willing to communicate freely, take outside advice when necessary and keep an open mind about their long-term goals, and what they would consider a successful outcome. Wealth needs to be responsibly given and responsibly received. Neither is straightforward, but achieving it through challenging conversations, mentoring and education is a worthwhile prize.”
Quilter Cheviot is also focused on succession planning and says it partners with legal firms and care providers to hold free events for clients. These events cover topics such as lasting power of attorney, wills, estate planning and inheritance tax.
Rothschild Private Wealth is conducting a work experience programme for its younger generation of clients to teach them about the practical side of managing wealth. It is also currently developing a specialist training programme with a family to introduce its next generation to finance.
“The inheriting generation should be brought into the family’s wealth discussions, so they can become acclimatised, says Neil Moles, managing director of the Progeny Group, which runs one-to-one sessions for clients’ children. Starting from the age of 10 years old, it teaches them the basics of finance to build their understanding before approaching the bigger issue of financial responsibility.
“As well as this ‘in the classroom’ style of education, it is crucial that the inheriting generation learn through practice, by actively encouraging children to save from as young as possible feeding a noticeable amount into a real investment portfolio where they can research and track their own stocks and funds, fully experiencing the peaks and troughs of the market,” says Mr Moles.
He stressed the importance of learning to communicate on the same level as the new generation of investors — which requires more sophisticated use of technology.
“This a generation that expects to have information at the tips of their fingers and an immediate response. To remain relevant, wealth managers need to provide that.”