Clive Waller: Why most advisers are wrong to target children of clients

By Clive Waller

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Apr 16, 2019

A current theme among the financial planning community is that firms need to engage with the children of their clients. It is the sort of idea that is easy to support, but does it really make sense?

For years, most advisers have focused on the baby boomer generation. When I once suggested this was short-sighted to the delegates at an adviser conference, I was shouted down by very comfortable, BMW driving, 50-something males, confident 1 per cent on drawdown funds would keep them financially secure ad infinitum.

Regardless of the flaws in the 1-per-cent-fee-for-drawdown model, which I shall refrain from repeating here, it is obvious a business without a flow of new clients is not going to maintain its cashflow or sale value. That should cause concern.

That said, any advice proposition should have a clear target market (RDR, Mifid II and Prod make this obligatory) and the children of clients will rarely fit into that. So, my worry is that the firm would be putting its own perceived prosperity ahead of a brilliant proposition for these children.

It might be helpful to look at clients by assets in order to consider whether their children could be suitable at some stage:

1. The uber-wealthy

This is where family offices thrive. Not many advice firms compete in this sector. However, multi-family offices are a legitimate move upmarket for those with very wealthy clients.

Others have the same needs, especially farmers and established family businesses, where the client has the nature and quantity of assets to naturally look to intergenerational transfer. In such cases, the family is the client. They would typically have assets in excess of £10m – usually much more.

2. Those whose wealth will outlast them

These are families where there is sufficient income guaranteed or assets such that, whatever happens (i.e. market corrections, long-term care requirements, etc.) a significant amount is still certain to be inherited. They would typically have assets in excess of £5m.

3. Clients whose wealth should outlast them

These are families where meaningful wealth will be inherited unless circumstances conspire – i.e. extreme longevity, prolonged long-term care need or significant market corrections. They would typically have assets in excess of £1.5m.

4. Those likely to spend most of their assets

The vast majority of retirees will spend all their savings. They simply do not have enough. Many will try to pass their last home to their children. Some will succeed; some won’t.

So, you want to engage with your clients’ children? If your clients are aged, say, 50 to 70, it could be between 20 to 40 years before children inherit. If the children are aged 25 to 45, it could be as much as 25 years before they fit your client proposition – assuming they ever do.

As such, you will need a totally different proposition to meet the needs of younger folk who are borrowers, not investors, with needs for life insurance, income protection and mortgages. There are already firms that specialise in mortgages and protection. They might just be better at it than you.

There is then the huge issue of interest. Most young people are extremely unlikely to engage with their parents’ advisers, such is generational change. It may sound cynical but the only time most will be interested in talking to their parents’ advisers is when there is likely to be an imminent reward in their doing so.

If you intend to engage your clients’ children, make sure you have a proposition that genuinely benefits and suits them rather than one that is a desperate lifeline for the future health of your business. There may be more suitable opportunities.

Clive Waller is managing director of CWC Research

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Money Marketing

Money Marketing, Centaur

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John 6 months ago