Exploring the changing attitudes to inheritance and the implications for the financial services industry

A new wealth paradigm - A message from Sanlam's CEO


The wealth management industry is undergoing a period of significant and transformative change. Heightened political and economic uncertainty, increased regulatory pressures and digital disruptors have given rise to a new era of uncertainty for everyone involved. Yet the most significant and potentially lasting of these changes is still to come: within the next 20 years, we will see the largest ever intergenerational transfer of wealth, where trillions of pounds’ worth of assets will be passed down between generations.

Understandably, wealth management firms are considering ways to attract new clients in this great generational transfer of wealth. Most of these potential clients will fall into two demographic groups: Generation X and Generation Y (popularly known as millennials). This latter group – those who became adults after 2000 – are perceived as more socially mindful, environmentally conscious and tech-savvy than their predecessors.
We are also often told that this group are less wedded to traditional models of investing, advice and money management, in many cases favouring electronic over human interaction. They look for new, innovative ways of saving and making their financial goals reality. As a result, wealth management firms will need to find new routes of attracting these potential clients.

There has been no shortage of media stories about millennials or reports into money being passed down the generations, but these invariably look at the story from one side. So far, there hasn’t been anything that looked at this issue from the perspective of all the three key audiences involved in the story: the donors (those gifting the inheritance), the beneficiaries (those receiving the inheritance) and those who will be handling the transfer (financial advisers, lawyers and wealth managers).

This report provides an insight into each of these distinct groups. It also allows us to compare and contrast attitudes. This means we can identify potential trends or patterns, as well as uncover anything that could pose risks or opportunities in the future. 

We believe there are greater issues at stake here than simply the transfer of wealth. As we celebrate Sanlam’s 100-year anniversary in 2018, we are thinking about how we can contribute to building a lasting financial future, and ensuring our clients and their loved ones have the means to achieve their aspirations and make the most of their lives – for generations to come.
 
Jonathan Polin
CEO, Sanlam UK

 

Executive summary

 

The great wealth transfer

 

Almost two-thirds (64%) of 25- to 45-year-olds expect to receive inheritance from their parents and grandparents, with nearly half of these (29%) expecting to receive at least £50,000 in fixed assets or money. 
 

Difference between expectations and reality
 

 The mean average value of the expected inheritance (for those under-45s expecting to receive £50,000 or over) is £233,000. The mean average amount our over-55s sample is actually leaving behind is £257,000, but mostly split between several different family members.
 

Inheritance as a financial panacea
 

A third (34%) of our 25–45 sample say they are relying on their inheritance to help them out financially in later life; and an additional third (31%) say the fact they have this inheritance coming has put them off saving so they can “live in the now”. 

Under-45s struggling to engage with longer-term financial planning. Four in 10 (40%) of our 25–45 sample have less than £10,000 in savings; a quarter (24%) don’t know the value of their pension pot, or say they don’t have one at all; and over 40% think they need £100,000 or less for their retirement. 
 

Older generation concerned about the financial security of their children
 

Almost two-thirds (61%) of our over-55s sample don’t think younger generations are getting adequate financial advice and 40% are concerned about what they will do with their inheritance. The majority (59%) of inheritance donors want their children to see a financial adviser. But just one in 10 (9%) have spoken about it.

Families not talking about inheritance. Four in 10 (38%) of the under-45 sample who are set to receive a substantial inheritance haven’t spoken to the person gifting about their plans for the money. 
 

Adviser industry concerned about its ability to target younger generation of clients

 

our in five (81%) financial advisers say intergenerational transfer of wealth is the greatest opportunity for their industry, but a quarter (23%) are concerned about their ability to attract younger clients. The market opportunity, however, is there: three-quarters (76%) of the under-45s will be engaging the services of a financial adviser once they’ve received their inheritance.
 

Fintech is starting to make its mark, but not to the detriment of traditional financial services
 

Roughly a third of over-55s and under-45s have used one or more fintech service in the past year. Although many people still aren’t aware of fintech providers, the changes could be significant over coming years. Meanwhile, one in 10 (13%) under-45s say they will be interested in investing in cryptocurrency, which is well below the quarter that say they’ll be looking to invest in the stock market.

 

Navigating a changing world - a message from Penny Lovell, CEO of Sanlam Private Office


The findings from this report show that the level of wealth transfer in the UK is set to be highly significant. Therefore, it presents both opportunities and challenges for the financial services industry and society more generally. That it comes at a time of profound societal, political and economic upheaval simply adds another element of complexity and uncertainty to an already extraordinary picture. 

Take, for example, the rise of fintech disruptors that have come to the market in the past few years on the promise of democratising financial services, or the fact that the world is only beginning to come to grips with the implications of big data and artificial intelligence, and how they will shape our everyday lives. These are potentially ground-breaking changes, and mean that any wealth being left behind for future generations could be inherited in a world that looks radically different to the one we’re in now. 

This is one of the reasons why, along with our consumer sentiment research, the team at Sanlam spoke to a variety of our private clients, financial advisers, lawyers, accountants and family offices to get their view on what this wealth transfer means for the industry.

This is a complex picture, and as an industry we need to make sure we listen to all sides in order to successfully navigate this future with our clients.

Here is a print friendly version of The Generation Game research

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