Investing attitudes of emerging investors

Currently, with nearly two-in-three advice clients being Baby Boomer or older clients, there has traditionally been a strong focus on this cohort of clients. But as these investors progressively shift from wealth accumulation to decumulation, 61 per cent of advisers have already reported clients transferring wealth to their children/beneficiaries or are in the process of doing so.

“This wealth transfer presents a significant shift in the advice industry, and a notable departure from what advisers have been used to doing,” says Leah. “But over the coming few decades, advisers who embrace generational wealth transfer can potentially benefit from the opportunities this provides, including the future value of their advice businesses.”

Results from the ‘Opportunity Next’ research show that savvy advisers are leaning into the intergenerational wealth transfer opportunity and benefiting from doing so. According to Leah, many advisers are proactively engaging with their clients’ children and beneficiaries in a bid to strengthen relationships, retain their clients, and protect and grow the future value of their practice.

Of the advisers surveyed, 41 per cent reported they proactively encourage clients to involve their children/beneficiaries in wealth transfer conversations. These advisers reported tangible client retention and engagement benefits by doing so. These included:

• 77 per cent reported retaining over 50 per cent of their clients;
• 79 per cent said it provided more touchpoints with their client’s beneficiaries; and
• 77 per cent confirmed an increase in client satisfaction.

In contrast, for the 46 per cent of advisers who waited for their clients to suggest involving their children/beneficiaries in wealth transfer conversations, the results were considerably lower:

• Only 47 per cent reported retaining over 50 per cent of their clients;
• 56 per cent said it provided more touchpoints with their client’s beneficiaries; and
• 56 per cent reported an increase in client satisfaction.

“For advisers, it’s important to remember that trust is built between five and seven touchpoints,” says Leah. “So, by integrating the next generations into family conversations with your existing clients, as well as having a communications strategy that reaches out to the next generations, advisers can build an effective way for developing trust and a rapport with emerging investors. This is an ideal way of becoming a trusted adviser across multiple generations.”

According to Leah, one particularly interesting finding to emerge from the research was the overwhelming trust and confidence clients have in their adviser. She believes this is a further incentive for advisers to become proactive with intergenerational wealth transfer conversations.

The report reveals that 97 per cent of high-net-worth clients, with over $1 million in investable assets, would recommend their adviser to their children.

“This figure does drop with core and mass affluent clients but still, three-in-four (or 76 per cent) of these clients would recommend their adviser to their children in the future,” says Leah. “These results confirm the incredible opportunity advisers have by building trusted relationships with their Baby Boomer clients. These strong relationships and lead generation opportunities, which advisers should be leveraging, already sit within many advice businesses.”

While Baby Boomers are focused on the preservation and orderly transfer of their wealth, their children and beneficiaries will generally inherit these assets with new objectives and a distinctly different set of values. Leah says how the next generation invests won’t necessarily resemble the way of their parents.

The ‘Opportunity Next’ research supports the latest findings of the Responsible Investment Association Australasia (RIAA) in its report — From Values to Riches 2024 — which found that 88 per cent of Australians expect their super or other investments to be invested responsibly and ethically (up from 83 per cent in 2022).

With a greater proportion of younger Australians indicating their intention to invest responsibly in the next 12 months (45 per cent of those aged 18-24 — Generation Z; 36 per cent of those aged 25-39 — Millennials; and 19 per cent of 40-59 year olds — Generation X), its not surprising that 64 per cent of consumers now expect advisers to be knowledgeable about responsible investment options, says Leah. She cites this as now being the leading expectation Australians place on advisers, even ahead of investment returns.

“There is an increasing expectation to offer responsible investing solutions to meet the evolving needs of the younger generations who are going to inherit their parents’ wealth over the coming decades,” says Leah. “Advisers need to be able to respond confidently to the next generation of investors, and clearly show them they have the knowledge and options available to help these investors with their investment needs and goals, which align to their values.”

According to Leah, with growing interest from the next generation of investors in investments that deliver ethical outcomes, many advisers are leveraging responsible investing to help address their needs. She also adds there are tangible benefits for advisers who discuss intergenerational wealth transfer alongside responsible investing with their clients.

Leah refers to the research, which found that of those advisers who are tapping into responsible investing to support their intergenerational wealth transfer strategy:

• 52 per cent agree that demonstrating a strong understanding of responsible investing can help attract more younger clients:
• 91 per cent either proactively recommend responsible investments or in response to client demand; and
• 46 per cent believe that responsible investing is an important factor in satisfying their Best

Interest Duty to clients.

Of the 47 per cent of advisers who have already incorporated responsible investing into their advice value proposition: 75 per cent have reported an increase in touchpoints with their clients’ children and beneficiaries; 74 per cent said there was an increase in the quality of the conversations with clients; and 73 per cent reported an increase in client satisfaction.

“So, if you’re able to stitch together the intergenerational wealth transfer conversation with a responsible investing conversation, there are some tangible business benefits to be had.”

The research also explored how advisers are planning to address the intergenerational wealth transfer opportunity, with some interesting findings being observed. These include:

• 47 per cent plan to facilitate family conversations;
• 19 per cent plan to develop a proposition for this generational segment;
• 24 per cent plan to quantify the opportunity in their business; and
• 17 per cent have no current plan but intend to develop one.

“While we are seeing advisers increasingly facilitating family conversations, that number is still only 47 per cent. We think advisers are leaning into retirement planning but not necessarily intergenerational wealth transfer conversations. So, there is a definite opportunity for advisers at this pivotal point in a client’s investing journey, where they can be more proactive discussing generational wealth transfer,” says Leah.

However, she emphasises the importance of not just weaving the discussion about intergenerational wealth transfer into client conversations, but to also bring the family in on that discussion and journey. This will enable advisers to better manage the expectations of both existing clients and their children — the future generation of investors.

Leah also cautions advisers to be aware of issues that might crop up with wealth transfer conversations, particularly given Australia’s high divorce rate and some very complex family (and blended family) structures. These issues may pose genuine concern and risks to clients in relation to their wealth transfer intentions.

“Being a trusted adviser is extremely important. Advisers who can guide clients though this complex process, while providing comfort about the preservation of their wealth and the orderly transition of it to the next generation, will help future-proof their businesses,” says Leah.

“The key to building trust is understanding your client’s values and objectives, as well as those of their children and beneficiaries. By doing so, advisers can ensure a smooth transfer of intergenerational wealth, while helping to secure the next generation as new clients. That’s the future of advice.”