Why Financial Advisers should speak to clients about intergenerational wealth transfer

The number of inheritances and financial gifts taking place each year in the UK is increasing and predicted to continue to grow substantially. This is due in part to the ageing population and increasing wealth.

HM Revenue & Customs collected £5 billion in Inheritance Tax (IHT) in January 2022, which is up by £700 million from the same period a year earlier. The rise in IHT receipts is likely due to increases in wealth, including higher property prices, as well as the rise in inflation.

This growth in wealth transfer poses a number of risks and difficulties for you as a Financial Adviser, but also offers many opportunities.

This blog will cover these risks and benefits, the importance of communicating with your clients about intergenerational wealth transfer, and how estate administration can assist your client conversations.

What is the definition of intergenerational wealth transfer?

Intergenerational wealth transfer describes wealth that is passed down from one generation to another. This can be in the form of inheritance after death or via gift transfers; these transfers differ from loans as they exclude those that are expected to be returned.

Intergenerational wealth transfer statistics

Below are some interesting statistics that demonstrate the increasing number of intergenerational wealth transfers:

Our research paper, Passing on the Pounds, shows that:

Between 2017 and 2047, £5.5 trillion is expected to pass between generations in the UK

According to Family Building Society:

Their 2022 intergenerational wealth transfer report showed that only 12% of UK adults seek professional advice when preparing to transfer their wealth
The report also revealed that out of 8,749 adults, 51% did not pre-plan before transferring their assets to younger generations
The increase can be partially attributed to the value of household wealth in relation to the economy more than doubling since the 1980s
The value of intergenerational transfers is predicted to double by 2040

Risks and opportunities

These statistics show that a huge amount of wealth is left unmonitored and unmanaged upon transfer. This is risky for individuals as they may make errors that could have been avoided by consulting a professional.

It also poses a risk for you as a Financial Adviser as you may miss out on opportunities to manage the funds of the beneficiaries of these intergenerational wealth transfers, consequentially missing potential clients. However, by speaking to your current clients about transferring their wealth, you can nurture these relationships and increase the chances of acquiring new clients and retaining and gaining funds under management.

Why should Financial Advisers speak to clients about intergenerational wealth transfer?

If it was guaranteed that all beneficiaries of your existing clients were retained as new clients, the transfer of assets would not be an issue for your financial advice business. However, evidence shows that a significant share of the value of intergenerational transfer is lost annually. Financial Advisers risk the loss of millions of pounds in managed funds if beneficiaries are not engaged to become new clients.

Talking to your current clients in their lifetime about the risks of leaving their wealth unmanaged could ensure that upon their death, those who are benefiting from their Will are aware of the positives of seeking financial advice on their inheritance.

You should also make sure that your current clients are aware of the tax implications and other risks when leaving funds unmanaged or transferring wealth. The more knowledge that clients have about the potential dangers of wealth transfer, the more likely they are to advise their beneficiaries to seek financial advice for their inheritance.

How to ensure beneficiaries seek financial advice on their inheritance

The most common reasons for beneficiaries moving away from Financial Advisers are a lack of relationship with the Adviser, desire for control of their own funds, pricing of services, the range of services, and the age of the client.

There is a correlation between the age of a client and the age of their Adviser; younger clients are attracted to working with people who are closer to their age. Having a practice in place to seek and hire young Financial Advisers could improve the number of beneficiaries who put their funds into management.

Additionally, research shows that probate is still widely viewed as a legal service. If Advisers do more to dispel this perception and make it clear to potential clients that there are other options that can be sought when obtaining probate, the relationship between financial advice and probate can be encouraged. The beneficiaries/Executors of a client’s Will can then be engaged to become new customers for your business.

How estate administration can help Financial Advisers have conversations with beneficiaries about inheritance

The estate administration process can help to bridge the gap between a current client sadly passing away and establishing a relationship with their beneficiaries.

By introducing Kings Court Trust’s award-winning estate administration services, Advisers will be introduced to beneficiaries, gain a view of the potential wealth to be managed, and acquire a fee share on successful referrals. We look to support Financial Advisers by helping them retain funds under management, introducing potential clients, and expanding the services that they offer to include estate administration.

To put things into perspective:

Based on a client base of 600 clients and the UK average death rate of 1%, 6 clients will pass away each year. However, this could be much higher if you have an ageing client base
50% of those clients’ estates will require probate and 70% will use a professional service to obtain probate or take care of the estate administration. This means there is a potential for 2 cases to be generated annually
With Kings Court Trust’s partnership model, we differentiate by referring beneficiaries. With 2 cases and an average of 3.66 beneficiaries, there could be 7 potential additional clients per annum. From 7 new clients/beneficiaries, there is also a £777,000 investment opportunity as the average inheritance is £111,000 (based on Kings Court Trust’s average inheritance data)
Additionally, each of your clients will statistically have 1.2 living parents so there is even more opportunity if you support them with the estate administration
As a registered partner of Kings Court Trust, there is the opportunity to receive a fee share on every successfully referred estate to us. This means you can generate more revenue per annum for your business

Take a look at what one of our Independent Financial Adviser partners had to say about working with us:

We have a much closer relationship to the family, the client, and the beneficiaries. I’ve been lucky enough to be referred back beneficiaries from Kings Court Trust… it has been a very positive experience.

To learn more, watch our video on our intergenerational wealth transfer research below and download our informative guide on how to work with Kings Court Trust here.

Want to find out more about working in partnership with Kings Court Trust to offer your clients and their families award-winning probate and estate administration services? Get in touch today by calling 0333 207 5470 or filling in the form below:

Kings Court Trust is an award-winning probate and estate administration provider that support families at the difficult time of losing a loved one. Our tax and legal teams have the expertise to advise on any situation. We are committed to offering families a great service for a fair price which is why we work on a fixed fee basis so they know exactly what our service will cost from the outset.