The Equity Mates network reaches more than 600,000 young Australian investors each month. For advisers, these are the next generation of clients. This monthly email shares insights to help bridge the gap between young Australians and financial advice.

The wealth transfer is here

It is likely everyone reading this has heard the stat: Australia’s great wealth transfer will see $3.5 trillion in assets change hands by 2050.¹

What is less known: by some measures Australia’s great wealth transfer has already begun.

Research from KPMG earlier this year found that, for the first time, Gen X has overtaken Baby Boomers in overall household wealth. Split out by asset class, here is what KPMG found:

As Terry Rawnsley, KPMG Urban Economist, summed up, “The starters gun has been fired on the great wealth transfer”.

Questions that were future challenges for financial advice firms - how do we attract young clients, how do we engage children of existing clients - are quickly becoming key priorities.

The stats on inter-generational retention are not good. Studies out of the US found that 80% of children look to fire their parent’s financial adviser after receiving their inheritance.² Some put it as high as 87%.³ We haven’t come across research in Australia, but we expect the same effect would be seen here. Children often want to strike out on their own.

This creates both a challenge and opportunity for advisers. There will be a lot of wealth looking for a new home in the coming years.

So, what do young Australians want from financial advisers?

For advisers thinking about the next generation of clients, the question becomes: what do young Australians want from advisers?

We went to the Equity Mates community, the young Australians that will be on the receiving end of this great wealth transfer, to get a better understanding of how they approach financial advice today.

What is clear is that young Australians want advice. The biggest driver of this gap was, unsurprisingly, the cost of advice. But many of these respondents noted that their parents had financial advisers.

This got us thinking about the way Australian advisers are building relationships with the children of existing clients. There are a number of strategies advisers are employing today:

• Facilitating intergenerational financial discussions: 85% of Australians strongly believe in the positive impacts that financial discussions have on the family unit.⁴

• Starting the wealth transfer early: 61% of Australian advisers have clients who have already transferred wealth to their children with many clients wanting to begin the process while they’re still alive.⁵

• Subsidising advice for children: 70% of financial advice clients would like their adviser to also advise their children.⁶

These advisers are giving themselves a chance to build a relationship with the client’s children before their client passes on. And given the stats we mentioned earlier on inter-generational retention, that relationship will be important when the children look for advice on what to do with their inheritance.

How are you working with existing clients to engage their children?

With the wealth transfer underway, and the next generation of Australians calling out for advice, we asked some advisers how they’re managing this moment.

It’s a conversation we’re having more and more.

With a diverse range of ages with our clients, children could very well be young teenagers through to people in their 50’s.

There is a real need to get children, regardless of age, involved. With young kids there’s an education piece we focus on where we build up the general knowledge of future beneficiaries. It’s really important that everyone in the family has a good level of understanding. We look to hold family meetings where we run through an annual lookback of portfolios with all present, so they get to learn why certain assets are retained, disposed or acquired and more importantly the underlying performance of each asset.

For the really young members of families we seek to set up savings accounts and educate them around budgeting and the power of compounding returns. The basics are crucial. With teenagers we build upon the basics and educate them around the world of assets and financial markets. It’s really great as it often dovetails a lot with their high school work or university studies.

As children become older, and sometimes we’re dealing with children who themselves are in their 50’s, it’s about working through the purpose of the capital, which is so much more than just a target number, getting to the heart of what inspires them, what worries them, what matters to them and how their wealth can play a role in that.

Often families with larger balance sheets want to give back to the community, and getting some structure around a family’s philanthropic giving is an amazing way of engaging and educating future generations. Having regular meetings to discuss what’s important in the world to every family member and then working with them to identify what causes they will support and eventually having all generations see the positive change they’ve made in the world not only exposes everyone to the investment world but fosters really great attitudes to money and wealth, especially at an early age.

Education is paramount. We see increasing financial literacy of all clients as a critical ingredient to our relationships. We believe clients who understand markets, risks and cycles are better investors as they are less likely to react to emotional triggers. We work on the fundamentals with them.

With adult children, if we are doing things in anticipation of wealth transfer such as having entities established and superannuation tidied up this all helps.

Regardless of the age of the children, ensuring we continue to hold assets in the right tax structures and continue to hold assets that are aligned to their objectives ensures we can continue to engage across generations.

Overall nothing beats regular and continual face-to-face interactions.

We’re seeing a growing number of clients interested in ‘living giving’, which refers to supporting their children financially during their lifetime rather than waiting for a traditional estate transfer. This might mean using their superannuation, proceeds from a downsized property, or other assets to help with a home deposit, clear a child’s mortgage or help set up a business. It’s often a significant gesture that gives the next generation more flexibility and less financial pressure, thereby creating an opportunity for us to engage with the children in broader planning discussions.

We’re also noticing a shift in how clients think about financial literacy within the family. Many are reaching a stage where they want their children to understand and participate in the family’s financial affairs, especially when structures like family trusts, SMSFs, or charitable foundations are involved. In some cases, our client’s simply want their children to be more engaged in their own financial wellbeing. These conversations are a natural on-ramp for educating and involving the next generation, and for building multi-generational relationships.

It is at these junctures where we are often introduced to our clients’ children, either through joint planning conversations or as they begin to seek their own advice, and where the foundation for multi-generational relationship is built.

We’ve been loving the feedback from the Basis Points episodes we’ve released so far. You can check out all episodes on YouTube, Apple Podcasts, Spotify or wherever you listen to podcasts.

As part of our mission to support all Australian advisers, all Basis Points episodes are accredited for CPD by the Financial Advice Association of Australia. To claim your CPD Points:

• Listen to or watch the episode

• Follow the link in the show notes or YouTube description to complete the CPD Quiz

• Complete the 3-question CPD quiz

• We’ll email you your CPD certificate

Here’s what we released this month:

Angela Ashton helped us understand how to choose a great asset consultant and unpacked her process for fund manager selection:

Rob Mead shared trillion-dollar manager PIMCO’s view on the economy and why their base case is 3 more Australian rate cuts this year: