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March 15, 2019

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Manifesto for Change 

A London-based financial adviser has launched a manifesto designed to combat what she sees as the increasingly “sales-led” culture of wealth management in the UK. Based on a three-pronged approach, it urges government and the financial services industry to commit to improving accountability and eliminating unethical practices. Employees are asked to speak up about bad behaviour and insist on equality, while women in particular must “own their power” to demand change. (From Citywire, 8 March 2019)

Get Rich Quick with Bitcoin? Not Likely
In it’s first analysis of the cryptocurrency market, the Financial Conduct Authority (FCA) has found most investors have a “get rich quick” attitude and invest only because they fear missing out on the next big thing. According to the FCA’s analysis, fewer than one in ten crypto investors carry out any meaningful research before buying, with most not knowing what they’re getting into – making their chances of success slim. (From The Times, 10 March 2019)

Chip & Press, Not Pin
NatWest has revealed it is running a fingerprint technology trial which, if successful, will enable bank customers to spend more than £30 using contactless cards with a fingerprint sensor, never again having to remember a four-digit pin. The pilot is the first of its kind in the UK but more biometric trials for payments may quickly follow, particularly as banks begin to prepare for upcoming PSD2 regulations that will require new levels of authentication to complete card transactions in stores and online. (From The Guardian, 11 March 2019)

Debt Lingers into Retirement

The long-held assumption that your mortgage will be paid off by the time you retire has been cast into doubt by new data, which suggests the average 55-64-year-old will take an estimated £36,500 of mortgage debt into their retirement. This equates to approximately 10% of this age group’s property value. The problem is only set to worsen as an ageing nation’s pension provisions wane, leaving older savers with the challenge of boosting retirement funds while also managing mortgage repayments into retirement. (From Mortgage Strategy, 11 March 2019)

The Self-Made Billionaire Myth 

Kylie Jenner is reportedly the world’s youngest “self-made” billionaire at the age of just 21 – but can the member of the wildly successful Kardashian-Jenner clan really be considered self-made? Probably not. Research suggests extreme wealth is less to do with genetics or intelligence, and more to do with environment and upbringing. The wealthiest members of society typically receive good quality schooling, an extensive network of contacts and a financial safety net from their family – influencing their ability to succeed regardless of their own abilities. (From Huffington Post, 8 March 2019)

Getting clued up on what we leave behind

This week, we attended a “masterclass on “next-generation wealth” hosted by FT Adviser and Money Management, with speakers from a range of wealth management firms, including our clients Canada Life and Netwealth, as well as representatives from Irwin Mitchell, Quilter and Octopus Investments.

A UBS study has showed that over the next two decades, millennials are set to inherit $24 trillion – the largest amount of money passed down from one generation to another than ever before. And, because there will be fewer millennials receiving money from more baby boomers, individual millennials are set to be even wealthier.

This might be particularly good news for early millennials born in the 1980s – studies have shown that cohort to be a “lost generation” who, due to various socio-economic reasons and the long-term effects of the financial crisis, may never earn as much as their parents.

The so-called “inheritance boom” that is expected to begin in the 2030s could also solve today’s housing crisis – most poorer millennials’ parents are homeowners and will help catapult a lost generation into home ownership, albeit 30 years later than expected. In fact, a great deleveraging of trillions in home equity from one generation to the next could completely change the housing market, improving everyone’s ability to get onto the housing ladder.

But some argue that the inheritance boom won’t be such a good thing for society. Some economists predict that the transfer of wealth will only make people from wealthy families even richer. Consider: in the US, between 1995 and 2016, only 2% of bequests equalled $1m or more – yet this money comprised upwards of 40% of wealth transferred. As inequality in society rises, some think this issue will only become more acute as the older generation passes on.

Regardless of how the inheritance boom will play out, the FT Adviser event focused on the realities surrounding this monumental intergenerational wealth transfer and the challenges surrounding it: are estates prepared for IHT? Where is the money currently tied up? How can advisers help their clients best?

When it comes to advisers being ready for the inheritance boom, there’s a lot of work to do. Most are aware that the wealth management industry needs to reset so as to better attract millennials.

Overall, the consensus of many speakers at the event seemed to chime with the findings in our recent Who’s Caught The Millennial Bug? report – that the “receiving” generation in question is actually quite astutely aware of the financial challenges they will face over the course of their lives – and similarly, that it was the “giving” generation that was most in need of advice on how to pass their wealth down best.

 

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