Oh hi, hello. I was hoping to bump into you. Not literally of course. It’s just something I needed to say.
But how are you? I wondered if we might have a little chat. And how’s the family? Good, good. What did I want to say? It’s not a big deal. Well, it’s quite a big deal. But not huge. It’s just something I think we both need to be a bit clearer about.
No. Let me start again.
We Brits tend to have difficulty being direct. Not all of us. Some of us can be spectacularly rude, perhaps from a sense of being superior to everybody else or because we think that’s what is meant by ‘being authentic.’
My great grandmother Ada used to say “I speak me’ mind” before going on to castigate anyone within castigating distance. But most of us are not Ada. The British are generally uncomfortable with speaking directly.
For instance:
- ‘Quite good’ usually means ‘that’s a bit disappointing’
- ‘Very interesting’ politely masks the thought ‘that is clearly nonsense’
- ‘I’m sure it’s my fault’ translates as ‘this is your fault’
- ‘With the greatest respect’ nearly always belies a complete lack of regard.
At one level, this is just a quaint national foible, but when it comes to effective intergenerational financial planning, it’s a nightmare.
While 80% of advised clients say that taking an intergenerational approach to financial planning is important, only 21% currently involve their children or grandchildren in talking or thinking about inheritance or savings for their future.
Figures from HM Revenue & Customs show inheritance tax (IHT) receipts increased to £7.5bn from March 2023 to April 2024, the highest value ever recorded. The main contributors to this outcome are, of course, both increasing asset values and the continued frozen nil rate band.
So, irrespective of what action the new Labour government decides to take (or not), IHT is a financial planning issue that will not be going away any time soon.
It’s been well reported we are drawing closer to what’s best known as ‘the great wealth transfer’ – the biggest passing on of financial assets since the beginning of time. Sounds dramatic? Well, that’s because it is.
It is estimated that, over the next 30 years, an unprecedented £5.5trn of assets in the UK are set to pass between ‘baby boomers’ and Zillennials (Millennials and Generation Z).
So, while an undeniable opportunity, this unprecedented transfer of wealth also poses the industry some serious questions and significant risk.
There is a clear need to dial up engagement with dependants, yet many advisers are yet to engage meaningfully with their main clients’ family members.
Talking with loved ones and planning ahead are the most important parts of the wealth transfer process. Having a transparent conversation with family members and developing a clear plan can make all the difference between the legacy of love and care, and the legacy of potential hurt and confusion.
From a business perspective, unless conversations with clients about IHT and estate planning start earlier, there will be advisers who lose assets in the great wealth transfer. Sad but true.
But there is an important prequel to the great wealth transfer that hasn’t been given nearly as much screen time as it deserves.
Because surviving spouses and partners typically get the initial inheritances, and because women typically outlive men, bequests in the coming years will largely go to women. Before money is passed down, a huge proportion of it will be transferred “intra-generationally,” meaning from one spouse to another.
Ladies and gentlemen, the ‘horizontal wealth transfer’.
Life expectancy varies between men and women and, quite frequently, couples have an age gap, therefore the inheriting spouse will typically own and hold onto this wealth for an average of four “post-inheritance” years before passing it on.
Obviously, there will be shorter and much longer “interim ownership” periods and, the longer that period, the more the amount eventually passed on to succeeding generations will vary.
And while little noticed, these horizontal transfers have the potential to reshape the wealth management landscape, which has largely been dominated by men. Most people have a rather feudal idea of wealth going down through generations, but about 10% is likely to go sideways, to spouses or partners first.
Those transfers, along with other broader forces in the economy, are adding to the so-called ‘feminisation of wealth’. With women’s incomes and wealth rising, combined with inheritances for both older and younger inheritors, analysts expect women will make up a growing share of high net-worth investors and consumers.
Indeed, women now make up over 11% of the world’s millionaires, nearly double the share in 2016,
All this to say that, in the very near future, clients will likely be different people, with different ideas and different things they want to do with their wealth.
A McKinsey report estimated women are expected to control most of the $30trn in baby boomer wealth by 2030. While the wealth management industry has been traditionally dominated by male clients and male advisers (accounting for 85% of the latter group), that’s changing fast – and it’s only just the beginning.
Phil Wickenden is founder of Ad Lucem
