Two co-founders have underscored why fostering trust with the next generation is vital to retaining intergenerational wealth.
Losing significant assets through generational attrition is a key danger that advisers face ahead of the incoming $3.5 trillion intergenerational wealth transfer.
Despite being well-aware of the wealth set to be passed down, many advisers lack relationships with the offspring of their current clients, according to the duo.
Speaking on a Netwealth webinar, finance platform Flux co-founders Brett Joffe and Justin Joffe – which was acquired by Netwealth last October – highlighted CoreData research that revealed advisers lose two-thirds of funds under advice (FUA) on average when money moves between generations.
“Despite the really significant intergenerational wealth transfer that is coming, many financial advisers currently have little or no relationship with the future generations of their current clients,” said Brett Joffe.
“Often younger generations either don’t know who their parents’ adviser is or they’re simply not interested in engaging with them. This creates a huge risk for advisers – when that $3.5 trillion of wealth does shift hands, advisers face this risk of losing those funds under advice. The question is: what would happen to your practice if you lost, say, 66 per cent of your funds under advice over the next decade?”
For example, this could lead to a steep drop in FUA from $500 million to just $180 million as a result of having no relationship with next-gen heirs, Brett Joffe noted. To prevent this, the co-founder emphasised the importance of building trust with clients’ children prior to wealth actually being passed down.
“If you want to retain intergenerational wealth, you really need to start building intergenerational trust. Our belief is that financial advisers who are proactive and really step up will have a special and rare chance to build lifelong relationships as the wealth transfer takes place.”
While younger Australians often turn to social media for financial guidance, they still prefer to receive advice from a trusted source, which includes family members.
Referencing feedback from their members, the co-founders said the majority of Gen Z values trust above specialist knowledge when receiving financial advice, contrary to their parents’ generation.
“Simply put, advisers very much need to establish direct trust and a direct relationship with next-gen clients themselves.”
To become a trusted source for future generations, the pair encouraged advisers to create a new service model catered to younger clients. This means using fewer, higher-value touch points with these individuals to demonstrate value.
Three avenues to achieve this, according to Flux, includes providing:
- Financial content – builds trust and authority by educating next-gen clients in a simple yet digestible way.
- Digital tools – provides instant, personalised value.
- Online playbooks – empower next-gen clients to take action independently.
These solutions can be centered around key financial milestones that Gen Z and Millennials face, such as starting their first job, buying their first property, getting married, moving abroad or starting a family.
“Each of these moments can become a touch point for advisers to start building a meaningful relationship,” Brett Joffe explained.
Justin Joffe concluded: “The goal with all of these tools and ways to engage the next generation isn’t to replace the relationships, it’s to earn them earlier and also more efficiently.”
Commenting on the CoreData research, its global chief executive Andrew Inwood told Netwealth in a separate podcast that the fastest-growing segment of advice firms was those which were having multi-generational conversations with clients.
“A lot of Australians are really worried about mistakes being made after the passing of the people who’d built the wealth and that it’s going to go somewhere, and they’re going to trust those good decisions to the advisers.
“Good businesses are all over this, and they’re doing a very good job at having that conversation.
“If you’ve got an advice business and you’re having the conversation with the second generation, not only do you help them a lot, but you tend to be able to add a real longitudinal value to your business.”
Flux’s sentiment coincides with research from Fidelity International, which found earlier this year that trustworthiness is one of the top factors enticing unadvised Australians to seek a financial adviser.
