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161 | How can you connect with your next generation of clients?

In order to consider the viewing of Akademia videos as structured learning, you must complete the reflective statement to demonstrate what you have learned and its relevance to you.

Tutors:

  • Clive Worlock, Director of Private Clients, Charles Stanley
  • Katie Tasker, Investment Manager, Charles Stanley
  • Danby Bloch, Head of Editorial Strategy, Platforum

Learning outcomes:

  1. Five things that make the next generation of clients different.
  2. Best practice advice on how to connect with your next generation of clients.
  3. How fund managers look to ensure liquidity in their portfolios

Click on this link for more information on intergenerational wealth transfer: Book of Stories

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PRESENTER: As the current generation of baby boomers pass on more and more of their wealth, the rate of transfer is expected to increase dramatically. What does this mean for financial advisers? Well, according to Charles Stanley’s recently launched white paper, the next generation of clients will be different, and financial advisers should be prepared for the challenges they might face. And this is what we’ll be discussing in this Akademia session.

On this panel we have Danby Bloch, Head of Editorial Strategy, Platforum; Clive Worlock, Director of Private Clients, Charles Stanley; and Katie Tasker, Investment Manager, Charles Stanley. And the key learning outcomes of this Akademia session are why the next generation of adviser clients are going to be different; best practice advice on how to connect with your next generation of clients; and how team work and succession can support the success of your firm.

Danby, Katie and Clive, hello, and thank you very much for coming to our studio today; the first question to you Danby, why is the whole talk about the next generation of clients important now?

DANBY BLOCH: Well, it’s because people of my generation, what are widely known as the baby boomers, have got all the money. And the people of the generations coming up, the 30-year-olds, 40-year-olds, have less money, and are expecting to inherit or to receive quite a lot of money. And my generation is coming to that stage in life I regret to say that we might be coming to the end of our lives. We’ll be passing money down either during our lifetimes or at our death, and there’s a huge amount of money that is coming down the line to the next generation, a very large amount of money.

PRESENTER: What amount are we talking about?

DANBY BLOCH: Well, could be £300bn. That’s been mentioned as the amount that’s likely to be transferred over the next 10 years or so. And the problem is that financial advisers, wealth managers, financial planners are in danger of missing out on the next generation’s money when it comes to be passed down. There’s a statistic out there, it’s based on some American data, but it’s backed up by anecdotal evidence in this country, that something like 90% of the clients who are, who pass down assets to their next generation, they are the last generation to be with a particular adviser, 90% of advisers lose those clients when it goes down to the next generation.

PRESENTER: That’s quite a big number.

DANBY BLOCH: It is a big number. And I’m not sure it’s as big in this country. But it certainly is quite a big number. And anecdotal evidence suggests that it is a serious problem.

PRESENTER: Katie, you’re dealing with clients on a daily basis, why do you think is that, why are we seeing these numbers, why would they be leaving?

KATIE TASKER: I think quite often clients when inheriting want to move their money away from where mother and father had their money. They want to start something new, a clean sheet of paper. And I think it could be irrelevant of how you’ve performed or how you’ve looked after their parents, they just want to start something new and afresh.

PRESENTER: And Clive, Danby has mentioned that this next generation we’re talking about, let’s just define this next generation. We’re talking about people who are now in their 30s and 40s.

CLIVE WORLOCK: And some in their 50s.

PRESENTER: Something like that. So why is it do you think that they are worse off, they have less money?

CLIVE WORLOCK: I think because generally I mean the social norms have changed. People are getting married later, having families later, and therefore actually they probably have less disposable income when they may be struggling with one income and 2.3 children. And therefore they just don’t have that level of disposable income.

PRESENTER: Danby, in this white paper, just explain to us, as well, what is this white paper all about, and what your participation has been in writing this paper for the purpose of our viewers. You mention there are several reasons as to why this next generation is worse off. Can you just elaborate on that?

DANBY BLOCH: Yes, well we wrote this white paper at Charles Stanley’s request, because of this well-known phenomenon that there is the disconnection between the two generations when assets pass down from one generation to another. And Charles Stanley, like a number of other older established firms, has actually been extremely successful at this particular trick of holding onto family money throughout the generations. Three, four, five, six generations, and sometimes probably quite a lot more than that, but people are not alive, having been living long enough to observe, so many generations. So that’s the basis of it. And the people who wrote this are my colleagues and I at Platforum, which is a specialist research company that looks at financial services, and particularly fund distribution and the way in which people give financial advice to their clients.

So that’s what we’ve been looking at. And I think just to go a little further into the issue of why the current generation is poorer in relative terms compared with their elders, this is quite well established. There have been a number of books written about it, The Jilted Generation for example. And just to pick out one or two statistics, houses for example, the average home is seven times, roughly seven, just a little over seven times more than the average income. So the average income is about £28,000, the average home is about seven times that.

PRESENTER: And what was it before?

DANBY BLOCH: And it was about three or four times about 20 years ago, 30 years ago.

PRESENTER: So it’s twice harder basically.

DANBY BLOCH: So it’s twice as hard to buy a house. And also with one or two changes in the mortgage market it’s also become more difficult to borrow money; even though it’s cheaper to borrow money, lenders have certainly in the last few years become much more strict about it. So there’s a real difficulty there. School fees is another area where they’ve rocketed up and they’ve overtaken the increase in inflation for people’s salaries or prices by a huge amount, and that has meant that grandparents are helping to pay for their grandchildren’s education much more than it ever was before used to be the case. But now it’s really necessary in order to do that. Or even if you can’t afford private education, tutoring, moving to a better area where there’s a better school and so on. So there’s a demand from the younger generation, and this is quite a sensitive area, but there’s a demand from the younger generation to perhaps have some money a little sooner in order to be able to cope with the vicissitudes of life.

PRESENTER: And when we’re talking about the differences between the previous generation, baby boomers generation, and this next generation, is it just the money we’re talking about, or is there a shift in their mentality that you see Katie?

KATIE TASKER: I think we certainly do see a shift in their mentality with what they’re looking at investing, how they’re investing. Whether it’s self-directed or through with advice, whether they have environmental, social or governance concerns. Which is not something that’s not existed in the past, but we’re certainly seeing it more and more often with how the younger or next generation are investing.

PRESENTER: And you mentioned the ESG factor here, and I’ve read some reports as well that mentioned that it’s much more important for the next generation, and they’re looking at it much more, more like value investing for them. But, as advisers, maybe Clive, if you’ve dealt with that as well, do you feel like you’re compromising, you have to compromise to the returns?

CLIVE WORLOCK: I think not necessarily. Not necessarily, I think it just really depends on the parameters that you agree with the client. And ESG obviously it’s a bit catch word at the moment and people are interested in it. But you have to define what that means to the clients: do they want to invest in certain sectors; do they want to stay away from certain sectors? Anything that restricts you as an investment manager has the propensity to upset the pattern of returns that you achieve for the client, but it doesn’t necessarily have to be detrimental. So I think it really depends on the specifics according to where you want to invest and what your restrictions should be.

PRESENTER: And when we’re talking about this next generation and talking about the differences, do you find because of the role of the social media right now and everything is 24/7 easy access, do you feel like you have to adjust the way you’re dealing as a firm, and you in particular dealing with the clients?

CLIVE WORLOCK: Well, I think, I mean we’ve seen it for years that clients tend not to write letters for example anymore. I can remember a time when I first started and you waited for the morning post to arrive. And now everything’s an email, so everything is instant, or clients increasingly might message you if they’ve got your personal number for example. So everything is much more instant. I think there are problems in terms of your interaction with clients into how far do you engage with them on social medial. So for instance on LinkedIn we might engage with clients and other advisers, but probably Facebook might be going a bit too far to open up your personal life to them. But it’s a fine line.

PRESENTER: And this is very important to keep that fine line isn’t it, because then if you are becoming their friend on Facebook, how far do you go? It’s a good thing, but on the other hand are you inviting them into your own personal life as advisers? And what are the main challenges that you’re seeing at retaining that next generation with you as a firm, Clive?

CLIVE WORLOCK: I think it’s just, I think from our perspective is that if you’re dealing with a client base who is ageing, it’s understanding where the rest of their family fits into the process, because, you know, increasing regulation, which means that we need to know every aspect of our client’s lives, means that we gather an awful lot of information about them, and that’s something that’s changed substantially over the last decade or so. But we don’t necessarily ask their clients if they’ve got grownup children; we generally ask if they’ve got dependents, then that has an implication for the income maybe that they wish to generate. But we don’t necessarily ask all the information that we should be doing in terms of what their objectives are in terms of wealth accumulation and who are they going to leave it to. So we need to engage with them more and gather all that kind of information to try and associate with the clients on different levels.

PRESENTER: Well, Danby, you write a lot in this paper that the importance of getting to know the whole family and not only the client. Can you tell us more about how do you do that?

DANBY BLOCH: Yes, I think let’s establish that as an objective. I think that one needs to not just focus on the client and the client’s spouse or partner or boyfriend or girlfriend or whatever, and the immediate dependents as Clive was saying, but going wider to the grandchildren, the grandparents, understanding the whole family context in which one is working. Now, in some families it doesn’t matter very much, because the core is the crucial thing. But in many families the wider family structure, and indeed friends beyond the family, can be really important in order to understand the dynamics of the family and what the client is trying to do and who is potentially going to inherit. And that’s not just from the selfish point of view of the adviser, you know, I’d like to know some more potential clients, but perhaps more in terms of really understanding what’s driving the client, what is important and who is important to the client. And then you’re going to understand, if you really understand those relationships, what’s make that client tick. Because what makes the client tick is absolutely crucial to understand what they’re about in order to produce financial plans, invest in the appropriate way.

PRESENTER: And what are the methods? It’s easy to say in a way I’m sorry, to say oh get to know the family, you should know them. But what are the mechanisms, what are the little tricks, what are the, how do you do that Katie?

KATIE TASKER: I think you have first the very formal way of doing it. Quite often you can ask if clients have got powers of attorney or wills in place, which are important documents to have on file as an investment manager. That will give you the first chance to see the names of the children and also ask perhaps more questions. But then the much softer side, as firms you can have social events which are focused on clients, and asking them to, do they want to bring their children or niece or nephew along with them. And then that’s a great opportunity to get to know them in a less formal environment, where it perhaps in the first instance isn’t about the money necessarily.

PRESENTER: So those social and corporate events are incidental aren’t they? You think about organising those special interesting events, and it’s something you have to invest as a company as well. Well, let’s say you’re dealing with this family, you’re meeting with them, you’re communicating with them, they already trust you, but then the inheritance happens, and it gets divided, that big pot of money that your client’s been carrying, it gets divided into smaller pots, which are not maybe as interesting for you as a company to deal with. Is there a danger in that, Clive?

CLIVE WORLOCK: There is a danger in that, but I think as Katie and I were discussing beforehand, you know, what you typically see is maybe only the tip of the iceberg. So a client might inherit a relatively modest amount of funds, but actually until you engage with them you don’t know what else they might have in addition to those funds, or might be in a position to inherit further funds. So you always have to, there’s no substitute for actually just engaging with those prospective clients to actually see what else there might be. And you might take a long-term view and think well in five years’ time they may inherit from a different side of the family some further funds, therefore even though it’s a small client we’ll take them on because there is the promise of further funds to come.

PRESENTER: And I think in the paper I read, Danby, also mentioning that sometimes the danger is that financial advisers are disregarding, let’s say they like one cousin who has a big pot of money, has a lot of money to deal with, and the smaller one maybe doesn’t have that much, and the financial adviser can disregard that person, and then that will influence the whole relationship with the whole family.

DANBY BLOCH: I mean it can be that if you offend one person because they don’t have a great deal of money and you say right you’re not rich enough to be managed by me that can cause difficulties sometimes in some families. So I think what we’re suggesting that financial advisers need to do is to invest time and resources to some extent in looking at and understanding and getting to know the next generation. And I think it does require a certain amount of investment of time and resources, there’s no getting away from that, but it will significantly improve the likelihood that you will be the adviser who’ll looking after the next generation’s money. Because you asked earlier about the challenges and the difficulties of getting to be the trust adviser of successive generations, well successive generations may not know you, know much about you, or they may say or may think your daddy’s financial adviser or wealth manager or whatever and not identify you with them. And it’s important that they get to know you and be comfortable with you. And the sorts of corporate events that some financial adviser firms do are used to be able to, in a relatively friendly and straightforward and easy way, nurture those kinds of relationships, and that’s worth doing.

PRESENTER: And talking about maybe not just the next generation, but the next generation of advisers as well, maybe it’s worth talking about a bit. Because in a way yes you have to be a professional in your sphere, you have to understand the finance and all of that, but from what we’ve just discussed it looks to me that you have to have really great social skills, those soft skills. Now in your practice can one be trained into that or really it’s something that a person has to come with?

CLIVE WORLOCK: I think it helps if it comes naturally to you, but you can learn those soft skills very definitely. And we’ve been through training programmes, and it’s useful just in terms of you might just be personality profiling for clients, understanding how to interact with different personality types, all those things can be learned. They’re all quite tried and trusted academic avenues.

PRESENTER: And often financial advisers have to deal with very sensitive issues, issues of death and poor health. How do you deal with that?

KATIE TASKER: Always with sensitivity and professionalism. Experience often guides you how best to deal with a client that’s at the end of their life or is having a more serious health condition. And you’re just very sensitive. I often find in those scenarios a phone call, an email doesn’t cut it and you actually have to get up and out of the office and face-to-face, you know, and that can be delivered much more kinder and just tread carefully.

PRESENTER: Do you find, well when we’re talking about families very often this is not just British white background families, they can be coming from different backgrounds, different countries and different understandings of what’s appropriate, what’s not appropriate. So how do you deal with that, how do you cater for those clients?

DANBY BLOCH: Well it helps if you have somebody in your team who is from a similar kind of background, but you can’t do that for everybody, and you could come across a very wide range of people. So you have to do your homework, you have to try and put yourself in their shoes, and try and understand something about their culture and background. I think one of the things that helps with practically every client in a sensitive situation, like death or a recent bereavement, or an illness or a break up of a marriage or relationship, or whatever, any of those situations, is that you have thought about the problems and the issues, in general terms as well as in their particular terms, and you’ve got the confidence to ask the difficult questions in a professional and straightforward and sensible way that they will relate to and understand.

So, as one of the advisers said in the research, you need to be a little bit of a chameleon. You need to mirror the behaviour and the vocabulary of the client. So, just a very simple example, some people talk about dying and some people talk about passing away. And it’s a good idea to mirror the words that they use. That’s a trivial example, but it can be important.

PRESENTER: But these are the soft skills that we’ve been discussing isn’t it? It’s almost being a good psychologist as well as a good wealth adviser. Now. Clive, in your practice, have you ever deal with interesting examples perhaps where you have to deal with people from different backgrounds, different cultures?

CLIVE WORLOCK: Yes, one of my longstanding clients is a first generation British Indian. You know, very successful businessman, two daughters, divorced. He made a lot of money in his business and progressively handed the money over to his daughters who are now middle aged, and they’ve got very substantial portfolios each. But it’s interesting because culturally they just don’t spend any of their money. And when you have conversations with them, it’s very clear that they regard themselves as custodian of the assets for subsequent generations, rather than the owners of the assets, and I think that’s very much a cultural thing. So that’s a good example.

PRESENTER: Well it’s very interesting that you’ve mentioned, because isn’t that often the case perhaps. That you’re seeing that the elderly, the older generation, they’re afraid to spend money on themselves, and thinking this is the pot of money I have to transfer to my children, grandchildren, better be careful with it. Is that perhaps a problem, Katie?

KATIE TASKER: Yes, we’re seeing that quite often. The phone calls that come into the office and say, you know, oh how much is on deposit, I want to go on holiday, but don’t really want to disrupt the investments. And we have to gently remind them it is their money. And try and manage expectations from both sides, because actually quite often the next generation would be horrified if they knew their parents weren’t going on holiday because there was an expectation of inheritance. So it’s softly encouraging them to spend it, but also encouraging them to have those conversations, and it is something we’re seeing. New cars aren’t being purchased and holidays are being reduced from five to four a year, but we try and work with them and encourage them that it’s fine, we’ve got it under control.

PRESENTER: Do you feel that also the older generation has feeling a bit more responsibility, since this next generation, 30s and 40s, they’re having to spend much more on school fees for instance, do you feel that they feel responsible, they have to step in earlier and help out?

DANBY BLOCH: I certainly think it’s the case that there is more money coming during people’s lifetimes to their children and grandchildren than perhaps was once the case. And that’s partly a function of the older generation actually having quite a lot more money, but it’s also a function of the fact that their children are in relatively greater need. And so lifetime giving is the bank of mum and dad as it’s widely called. It’s something that’s talked about a lot in the press and I think it’s very much a reality. So they need reassurance about how much they can afford to give away, but I think it’s the case that inheritance tax planning is necessary, but it’s often not a driver for financial planning in this context. It’s the constraint, it’s the limiting factor. And what’s really driving it is making sure that the kids and the grandchildren actually have enough money to do various things. But of course there are an awful lot of people who don’t feel like that as well, so you have to respect their views. So there are a lot of people who are SKIing, spending the kids’ inheritances yes.

PRESENTER: Yes, well certainly there’s another danger isn’t there, that if you give too much money too quickly to this next younger generation, that they just go and burn it, and then that’s it, your inheritance has gone. How do you deal with that, how do you make sure that they do not give too much too quickly to somebody who is too young?

CLIVE WORLOCK: Well, that’s quite a difficult question really Olga. I think it varies with the clients, frankly, and you do see some clients who are very reluctant to actually give their money away during their lifetime and others who are probably the opposite. And I think it just really completely depends on the client. I think as their adviser we’re always there in the background acting as a sound board for them, and actually we’d always have conversations with clients saying well actually it might not be a good idea to give so much money away, because actually if you need it for care home in 10 years’ time, you know, you don’t want to fall short. So you quite often have conversations along those lines with clients.

PRESENTER: Well, you’ve mentioned care home, the cost of affording being able to afford in your later life the care home and all of that care around you, it’s rising as well, do you see, does this generation, the baby boomers see it as a problem, do you see that as a problem as the money’s being spent much more?

DANBY BLOCH: You can exaggerate this problem, because the number of people who actually need to go into a care home for years, as opposed to weeks or months, is not so huge: roughly a sixth of people over the age of 80, that sort of thing. And generally speaking either the house or the pension scheme are going to be the last resort assets for paying for that if there isn’t enough money sitting in the portfolio. So I think it’s probably for the sorts of levels of people with several million pounds it’s probably not a major issue; it is a major issue for a very large number of clients of course as a possibility. Just going back on the thoughts that we had a little earlier about dealing with the younger generation who might spend the money that has been given to them for purposes of buying a house or setting up a business or something like that. I think that one of the really good reasons why you want to cultivate the relationship with the younger generation is to try and provide them with a degree of financial education in a quiet and sensible sort of way. And you could do this through events of one kind or another, or a quiet discussion over a lunch or something like that. It can be difficult if you’ve got a particularly tear away 21-year-old student. It might not work. But it might work, and in many cases it probably does. And there is much to be said for waiting perhaps until the kids are a little bit older than their student days in order to do that type of thing. But trusts are very useful things in that context.

PRESENTER: Yes, and we’ve touched upon briefly the importance of the team, and the diversity within the team to deal with different kinds of clients that come from different backgrounds, cultural, ethnicity and all of that. So, within your team, how do you solve this question Clive?

CLIVE WORLOCK: Well I think it pays to have a certain amount of diversity within a team, you know, both male and female advisers, managers, different age groups, different backgrounds. It’s something as an industry we’re not terribly good at, but we’re making strides in that direction. Because I think the more you try and match up your clients, particularly if you’re looking at a next generational client, somebody’s son or daughter of 25 is probably not going to want to speak to me, they’d probably much rather speak to somebody qualified but younger who they’ve got more in common with. So I think all these things help to cement the wider family relationship. And it might be that you deal with certain generations of client, and you get younger people dealing with other generations of client. That can work in a team structure, because you’re not at loggerheads with each other trying to compete for clients.

PRESENTER: Well that sounds all very sensible and common knowledge, and everybody agrees and understands. At the same time if everybody agrees and understands that fact, why is it that we’re seeing, we’re looking at the profiles of advisory firms, we’re still seeing about 80% male, white male perhaps, is it because there’s simply not enough candidates that offer that diversity?

KATIE TASKER: I think we’re seeing at all levels, we’re seeing it at application stage, we’re then seeing it at interview stage, the ratio stays pretty similar. We’re not attracting as many females or ethnic minorities into the industry as we would like. I think further on as you progress, once you get through the graduate programmes I think as you build up client relationships, anybody that needs to spend an extended time out of the industry typically on mat leave or another type of leave, health leave, then those clients need to know who’s looking after them during that period. And this comes back to having a diverse and broad team. If a client is comfortable that there is a team there who can continue to look after them, then there should be no reason why females for example can’t leave the industry and come back after nine months, because clients have been looked after during that time. And so I do think that the more we can diversify the employee base, the more beneficial it will be in the long run for the clients.

DANBY BLOCH: It’s a fabulous profession for women, I mean it’s a fabulous profession all round, but it’s a fabulous profession for women, and some of the most successful financial advisers I know are women.

PRESENTER: Is that because of the soft skills?

DANBY BLOCH: It’s because of the soft skills, it’s because of all the skills that they bring to bear.

PRESENTER: And one of the things you mentioned in the white paper is the importance of having a circle of professionals around you. Would you just elaborate a little bit more on that?

DANBY BLOCH: Yes, I think that one of the really helpful things that you can do is to recommend very good people to help people at different times in their lives. And I mean obviously accountants, obviously solicitors, but perhaps wider than that. Maybe people who know about care homes in your locality, or more generally, mortgage advisers, maybe even people who can help with problems with children, what schools should they go to, who are good tutors in the local area, psychologists, family therapists even. You become the go to person in your circle of friends and locality and among your clients, people who know people who are really good.

PRESENTER: At the same time, I understand the importance of building that circle of professionals around you, the lawyers, the psychologists, the tax advisers and all of that, but at the same time often when you recommend somebody you’re taking that risk and responsibility that that person’s going to do a great job. Isn’t that, do you see that as a risk?

CLIVE WORLOCK: Yes, it is a risk, and that’s why you have to be very secure in your faith and professionalism of the people that you introduce. So I would be quite guarded about who I introduce, but the ones that I do introduce I would have complete faith in that they’re going to do the right job. And I think where we come from is that we’re often, on the investment management side we’re often the last in the food chain. Because often clients will come to us, they’ve got an accountant, they might even be recommended by their accountant. They’ve got a family solicitor, etc. etc. So we’re kind of last in the food chain. But if we interact well with those and actually act in the client’s interest as part of their professional group then that really adds value to the client. And the client wants to see their professional advisers all acting together as a cohort. Not bickering between each other or disagreeing, they want to act as a cohesive group. The other benefit from that perspective is that actually if you do a good job it’s a tremendous intro for prospective other clients within that network that you’re developing. So it’s a real virtuous circle.

KATIE TASKER: And I’d just like to add to that for the client it’s beneficial if the network of advisers are all friendly and know each other, because we can talk amongst one another. We don’t have to keep referring back to the client. And if we have introduced a solicitor, an accountant, it is always appropriate and probably well received to just ask the client how they got on and if they enjoyed working with that individual.

PRESENTER: Katie, Clive and Danby, thank you very much for coming today.

In order to consider the viewing of this video as structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you should be able to understand and describe why the next generation of adviser clients are going to be different; best practice advice on how to connect with your next generation of clients; and how team work and succession can support the success of your firm. Please complete the reflective statement to validate your CPD.