Intergenerational Wealth

Expert:            Dave Beacham, Carmignac
Facilitator:      Richard Parkin, independent consultant 

The State of Play

• The Covid-19 pandemic has affected all our lives. It has changed not just the way we live and work but also how we think about the future. For older generations, for whom the virus is most threatening, there is an obvious focus on their own health and life expectancy. Those who are working may have lost jobs or seen a significant change in working patterns. Younger generations may be finding it harder to get onto the career ladder or may have had their education disrupted.
• But as well as dealing with the immediate fall-out from the virus, it has given us all chance to think about how we want our lives to be going forward. This might mean changing retirement plans - deciding to bring retirement forward or having to work longer to bridge any gap in savings. It could mean thinking differently about where we live and work, with most expecting a much higher level of homeworking and less travel.
• All of this will affect how family finances are organised, presenting an opportunity for advisers to help clients reimagine their futures. In particular, it demands consideration of how wealth is managed across generations. In some cases, this may just be a tweak to existing plans but for many it will involve a radical rethink of who gets what and when.
• This change in clients’ objectives and goals has to be managed against the backdrop of continuing uncertainty in financial markets. While we have seen equity markets recover from their springtime lows, many investors will still be nursing losses. Volatility remains high by recent standards and there is still a significant risk of further market falls and company failures. Fixed income investment may not offer much help either with yields at near-record lows. Delivering even modest returns for clients over the next few years looks set to be a challenge. In addition, the risks and opportunities associated with climate change and other ESG factors are also demanding adviser attention.
• Finally, our use of technology has taken a leap forward with all generations having to quickly get used to communicating online rather than in person.
• Against this backdrop, Carmignac see an opportunity for advisers to help clients plan intergenerational wealth on a more collective basis. Through working with all generations of a family together, advisers can bring some of the techniques typically associated with family offices to a wider group of clients. The willingness to engage in online communication can make it easier to bring all interested parties together and create a common understanding of objectives, goals and how these are met. From an investment standpoint, Carmignac suggest a focus on firms that have proven to be long-term winners. These may not all be household names but will have shown they can survive disruption through an ability to reinvent themselves over many decades. 

The Discussion

• We started by looking at how client objectives had changed. Some reported little change but there was agreement that the virus has prompted some of the older generation to consider their own mortality and prompted them to take action on estate planning.
• Client experiences will have been very different. Those who are already retired or who have been able to continue working from home will not only have seen less disruption to their finances but will perhaps have more disposable income and have been in a better place to take advantage of the buying opportunity in the markets earlier this year. One adviser reported seeing record flows of capital into his business as a result. On the flip side, those who have been furloughed or made redundant will be facing a very different set of challenges. Often these are the younger generations.
• This has, in some cases, seen a shift in the motivations for estate planning with more emphasis being placed on how financial transfers can help younger generations meet these challenges and perhaps less emphasis on limiting tax, often the main determinant of inheritance planning.
• Advisers agreed that technology has fundamentally shifted how they interact with clients and see this continuing in the future as our poll shows.
• This change has been driven by client’s need and preference for remote meetings but also by advisers seeing an opportunity to improve productivity and reduce risk through this approach. One firm told us that, where clients did want face-to-face meetings, there was a nervousness about coming into the advisers’ office and a preference for home visits. This had led them to focus on making sure clients understood what measures had been taken to make the advisers’ office safe to mitigate this concern.
• While managing existing clients online was relatively straightforward, firms agreed that taking on new clients without a face-to-face interaction was more challenging. Against this though, it was highlighted that a more digital advice approach could enable firms to extend the scope of their business, perhaps reaching into lower wealth levels than they had done previously.
• The gyrations in investment markets certainly created a lot of “noise” for advisers but our participants were keen to emphasise the importance of financial planning over investment. A sound financial plan would have anticipated the risk of a big fall in markets even if it could not predict when it might happen. Several firms emphasised the importance of cash flow planning in this regard and felt the crisis will have strengthened the case for using these tools not just with older clients but across the age spectrum.
• Diversification has also helped manage client concerns. While falling markets are always unsettling, clients took comfort that their portfolios had not fallen as far as some of the headline market indices.
• We finished with a discussion of ESG. There was broad agreement that this was a core focus for all age groups both in terms of the financial risks associated with ESG but also increased client focus on how their assets are managed in this regard. A final poll demonstrated that ESG is top of advisers’ minds in thinking about development of their investment propositions. 

Conclusion

It is a bit early to fully gauge the impact of Covid on client objectives, but it has certainly refocused attention on intergenerational wealth management. The more immediate consequence is on how it affects the advice process, and how technology can be used to improve the overall client experience as well as increase adviser productivity, reduce risk and perhaps extend the range of clients advisers can work with profitably.

There is no doubt that investment markets will continue to be difficult, but this only underscores the importance of long-term financial planning and the use of professionally managed, well-diversified portfolios.