Welcome to our January edition of ‘Insight’ by Insignis. Each month, we discuss a topic of interest within the UK financial sector. This month we are looking at intergenerational wealth and the role cash plays in ensuring a smooth transition whilst maximising client retention.
The intergenerational wealth divide means that for the first time in history, individuals in their twenties and thirties are generating lower incomes than their parents were at the same age. This is largely driven by increased net worth and a longer life expectancy.
This has led to an increase in the number of intergenerational wealth transfers; the transfer of assets from one generation to another. As the frequency and value of such transfers grows, it is important to acknowledge the opportunities and threats of intergenerational wealth and the mechanics behind ensuring a frictionless transfer between your existing clients and their beneficiaries.
An estimated £300bn will be passed through generations over the coming decade, growing to £5.5tn over the next 30 years. An estimated 70% of this wealth is comprised of property, which is likely to be liquidated prior to the distribution of the proceeds to beneficiaries. As property wealth transitions into financial wealth, there is the potential to significantly increase AUM for financial advisers. On the other side of the coin, failing to address this flow of assets now heightens the risk of significant outflows in years to come.
The vast majority will move from property to financial assets via the cash asset class.
Interacting with the next generation at an early stage is vital to ensure post-wealth transfer engagement. Over 90% of the beneficiaries of an intergenerational wealth transfer will not use the same financial adviser as their benefactor. By utilising the Insignis service, you can retain purview over the assets whilst offering an inclusive solution to your current client and their family members alongside mitigating the risk of losing future generations to your competitors.
One of the overriding threats of an intergenerational wealth transfer is the need to protect your clients from the wealth management arm of balance sheet-led organisations. As global firms including Goldman Sachs, JP Morgan, Barclays Bank and Lloyds Bank extend their reach into the adviser space by introducing bespoke savings products and making strategic partnerships with wealth management firms, client retention has arguably never been more challenging.
The Insignis service is positioned to enhance your intergenerational wealth dialogue and protect the next generation of clients from the financial advisers employed by these institutions thus ensuring higher levels of client retention for years to come. Insignis works with a select panel of over 30 banks, all of which are contractually obligated to never cross-sell to your clients providing you with peace of mind that your clients are protected.
Cash is the initial stepping-stone in realising this transfer of wealth as the next generation pauses for breath before deciding on a long-term plan for their newly inherited funds. In opening an Insignis account for the beneficiaries, you will have an immediate opportunity to build a relationship with the next generation whilst, together, you establish a long-term financial plan providing a holistic solution to your clients.
Insignis aids in the wealth transfer by offering a Hub-to-Hub solution which sees the funds transferred from the originating client’s Hub account to the newly opened beneficiary Hub account. This ensures that funds are not withdrawn to a third-party institution where the client is subject to cross-selling whilst simultaneously maintaining adviser purview over the assets at all times.
For example, our client wanted to gift her adult children a portion of her wealth but wasn’t sure how best to do so. After discussions with her financial adviser, the client agreed that the best approach would be to gift cash. The beneficiaries could then work with their family’s financial adviser on a long-term financial plan whilst ensuring the funds were earning competitive returns and maximising FSCS protection eligibility. Insignis applied a fee to the overall value of the combined portfolios of the family members meaning that the beneficiaries benefitted from a reduced fee.