Feature Articles Retaining and Attaining the Disengaged Recipients of the Wealth Transfer

Australia is on the cusp of the most significant wealth transfer in its history. Currently, household wealth in Australia stands at $16.2 trillion, highlighting the substantial accumulation of wealth among Australian households. By the end of this year, an estimated $3.5 trillion in assets will change hands between generations. This transition, involving substantial transfers of residential property, superannuation funds, and other investments from the Silent Generation and Baby Boomers to younger generations, presents a unique opportunity for financial advisers.

Advisers, particularly those managing high-net-worth (HNW) clients, must navigate the complexities of intergenerational wealth transfer to ensure smooth transitions and the preservation of financial legacies. This involves not only managing the transfer itself but also focusing on retaining the next generation of clients.

A nuanced approach for each generation

To effectively retain the next generation of clients, a one-size-fits-all advice approach will not suffice. Advisers must adapt their service model to meet to create an approach personalised to the distinct characteristics and preferences of each generation:

• Baby Boomers (1946-1964): Value stability and like traditional financial advice.
• Generation X (1965-1980): Want transparency and control.
• Millennials (1981-1996): Look for tech-driven, value-based services.
• Generation Z (1997 onwards): Seek authenticity and financial expertise.

When it comes to passing down wealth, Baby Boomers want clear plans to ensure their legacy is maintained. Generation X prefers flexible, tax-efficient strategies. Millennials aim to balance family needs with charitable goals, and Gen Z is passionate about using innovative tools and transparent processes for their new wealth.  

Communication styles also vary. Baby Boomers like face-to-face conversations, while Generation X prefers straightforward updates, often digitally. Millennials, being digitally native, expect quick, relevant advice through social media and apps, with a focus on transparency and social responsibility. Gen Z looks for instant, interactive, and personalised content.

Strategies for Retaining the Next Generation

1. Early Engagement and Education: The relationship gap with inheritors poses a critical risk, with a significant 69% of advisers lacking a relationship with their clients’ beneficiaries. Among the 83% of advisers with a formal wealth transfer strategy, the solution is prioritising early client engagement with future heirs. However, only 31% of that same group focus on educating clients about products and investment options – a missed opportunity. Developing educational resources specifically tailored to inheritors' knowledge levels and concerns not only builds their financial literacy but creates meaningful touchpoints that foster trust and increase the likelihood of retaining assets under management after the transition.
   
   
2. Facilitate Family Conversations: A key part of the strategy for 80% of advisers who have one in place is facilitating family conversations. However, 57% of advisers feel less prepared for these family conversations than other areas of wealth transfer. Facilitating open and honest family conversations can help address these challenges and ensure a smoother wealth transfer process. Engaging external networks, such as family therapists or estate planners, to assist in facilitating this conversation may help shoulder the burden. Finally, encouraging open discussions about wealth transfer plans early will ensure that any conflicts can be dealt with head-on.
   
   
3. Build Trust and Strong Connections: Building trust with the next generation and ensuring they are financially literate will give peace of mind to those passing on their wealth that their inheritance is managed responsibly. Start conversations with beneficiaries early to build trust and make them feel valued and included in the wealth transfer process. Tailoring conversations to assets or areas of wealth they are passionate about can improve their engagement level. Additionally, ask for clients' concerns and goals to better shape the strategies and decisions that will be implemented. This collaboration will build trust with clients and their heirs, ensuring everyone feels informed and confident in the process.
   
   
4. Leverage Technology and Adapt Communication: As wealth shifts to younger, tech-savvy beneficiaries, the integration of modern technology into advisory practices becomes more important. Leveraging digital channels for communication and real-time wealth management information, streamlines processes and better engages the next generation who often prefer digital updates than face-to-face communication. Using interactive tools to model different wealth transfer scenarios can help beneficiaries practically see the transition, building trust across generations.
   
   
5. Provide Comprehensive Advice and Services: Research shows that HNW investors most often seek advice on a specific topic (35%) or life stage event (29%). Notably, inheritance planning and intergenerational advice (29%) were by 37% of HNWs as an unmet advice need.
   Collaborating with estate planners, tax specialists, and legal professionals to move beyond investment management and provide comprehensive holistic advice that incorporates estate, tax, and succession planning will create a seamless client experience that meets their specific needs.
   
   
6. Address Concerns and Build Confidence: With 27% of advisers concerned that beneficiaries will liquidate a significant portion of assets currently under their management, engaging with heirs early to build strong relationships and support with financial education can help mitigate this risk. Wealth in motion: five key steps to capturing Australia’s wealth transfer.

The wealth transfer presents both opportunities and challenges for advisers managing high-net-worth clients. By adopting a proactive and comprehensive approach, advisers can not only navigate the complexities of wealth transfer but also build strong relationships with the next generation, ensuring the preservation of clients' legacies and their advisory practice.

For more information and insights download our guide Wealth across Generations. 

^{*Source for all statistics quoted is CoreData Q1 2024.}