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Navigating Australia's Intergenerational Wealth Transfer and Financial Planning Challenges

Over the next 15 years, Australia is expected to see a $500 billion intergenerational transfer of wealth. However, many Australians lack adequate personal protection, with 75% of those insured being undercovered. The population aged 60 and above will increase by 58% in the next decade, leading to asset depletion rather than accumulation. Moreover, the decline in financial advisers selling risk products poses significant challenges for consumers. This overview explores potential strategies for financial security and wealth management amid these shifting demographics and market trends.

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Navigating Australia's Intergenerational Wealth Transfer and Financial Planning Challenges

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  1. Intergenerational Advice Don McAllister

  2. Facts In Australia within the next 15 years, the expected Intergenerational Transfer of Wealth will be around $500 billion

  3. Facts Most Australians STILL do not have any Personal Protection, and of those that do, 75% are insufficiently covered

  4. Facts The number of people aged 60+ will increase by 58% in the next 10 years. These people will be using up their assets, rather than accumulating them

  5. Facts The number of Home Loans distributed by Brokers doubled in the past 3 years and is approaching 40% of the market

  6. Facts The number of advisers selling risk products has decreased by 75% in the past 15 years

  7. Facts “your chances of getting a financial plan rated as very good are less than 50 to 1. I think it's quite clear that consumers cannot trust financial planners.” Australian Consumers Association

  8. Questions • Do you view your business as an asset? • What is the “life-span” of your business? • What are the “growth” strategies for your business and are these supported by an effective retention strategy? • Do these issues represent threats or opportunities? • Do you value your business by renewal income alone . Eg. $100,000 revenue x number

  9. Factors in valuing a business • Original client data • Segmented clients • Under 45’s • Ave net worth • Turnkey • Marketing • EBIT • No of products • Staff continuity • Family unit ??????????

  10. Threats In Australia within the next 15 years, the expected Intergenerational Transfer of Wealth will be around $500 billion

  11. ADVISERS AGE + 50 • CLIENTS AGES + 45 pre retirees • WEALTH ACCUMULATION • INSURANCE UNAFORDABLE NOT WANTED

  12. BUSINESS INCOME • INSURANCE INCOME ………DOWN • SUPER & INVESTMENTS …..UP • RETIREMENT ? • THEN WHAT ?

  13. Threats The number of people aged 60+ will increase by 58% in the next 10 years. These people will be using up their assets, rather than accumulating them

  14. Strategies for Client ‘A’ Mr. & Mrs. A - Age 60

  15. WHAT ARE YOUR PLANS • TRAVEL , FISHING ,GOLF, ECT • ARE YOU INTERESTED IN MANAGING YOUR ASSETS ? • WHAT ARE YOUR THREATS ? • A - HEALTH B - RUN OUT OF $$$

  16. $1mil WITH A PLANNER COST TO SET UP YOUR PLAN 1% YEARLY SERVICE FEE 1% WHAT IS YOUR PLANNER DOING TO EARN $10,000P/A

  17. TO SET UP THE PLAN SELECT THE INVESTMENT STRATEGY HOW MUCH INCOME DO YOU WANT ? WHAT ELSE ?

  18. Threats CLIENT HAS A SON 35 AND DAUGHTER 29 SON MARRIED 2 KIDS WORKS IN SYDNEY HAS HIS OWN HOME DOING WELL QUESTION?

  19. Threats - WHAT DO YOU KNOW ABOUT HIS FINANCIAL POSSITION SON HAS A ACCIDENT HE HAS NO INSURANCE DISABLED LOSSES JOB

  20. Opportunities • Leverage Existing relationships • There are still huge gaps in the penetration of advice into the market. • We can lower our business risk and diversifying Income streams by attacking these gaps. • This will lead to an increase in our Business Value

  21. Common View of the Client Mr & Mrs A Age 60 $1.0+ mill invest-able assets High Value Clients $100k invest-able assets Low Value Clients Mr & Mrs B Age 35

  22. Intergenerational View of the Client Mrs K Age 85 Mr & Mrs A Age 60 Siblings & Families Siblings & Families Mr & Mrs B Age 35 Mr & Mrs C Age 33 Mr & Mrs D Age 29 C Jnr Age12 B Jnr Age 17

  23. Implications • What if, for every client who was reducing FUA by drawing down on an Allocated Pension, I had an associated client who was increasing their FUA by 20% per year? • What if I could increase my clients financial security, over and above that which I provide today? • What if could protect my FUA by securing relationships with those to whom wealth will be passed?

  24. Cycle of Client Wealth Creation $ 25 40 55 70 85

  25. Intergenerational Cycle of Wealth $ Gen 1 Gen 2 Gen 3

  26. Mr. & Mrs. A - Age 60 Strategies Capital $ Lifestyle graph INSTEAD OF HERE ENDED UP HERE Age O = Retirement Upper Confidence Level X = Life Expectancy Expected Median Outcome Lower Confidence Level

  27. Mr. & Mrs. A - Age 60 Strategies Estate Planning • Ensuring your clients “legacy” that you have worked hard to help them build, is effectively and efficiently passed to the next generation • Ensure that you or your business has an effective relationship with the clients that this wealth is passed on to.

  28. Strategies for Client ‘B’ Mr. & Mrs. B - Age 35

  29. Strategies As we have seen, a key strategy to protect the wealth of clientA, involves Clients B. The provision of adequate Insurance. Others include • Government co-contributions • Salary sacrifice • Gearing • Long Term Insurance Planning • Mortgages • Cash flow planning

  30. Strategies Accumulating wealth is like riding a bike up a hill. The earlier you start, the lower the gradient and the easier it is to achieve your goals. Mr. & Mrs. B - Age 35 GOAL! Easy! No Way! 45 25 65

  31. Will not have suffered a critical illness Will be diagnosed with cancer Will suffer from other critical illnesses Will have a heart attack Will undergo bypass surgery Will suffer a stroke Will die from something other than a listed critical illness Based on being 30 now 32% 22% 16% 53% 19% 11% 6% 7% 6% 15% * 5% 1% 5% 2% Strategies

  32. Critical Illness & TPD Claims: Examples of Trauma/TPD Claims: Based on Personal Risk Claims data from CommInsure, June 2004 Source: MLC Critical Illness Claims Data 2005

  33. Where’s The Protection Policy When It’s Needed? 25% Age at Entry Claims Experience 20% Ave Age at Entry Expected Ave Age at Lapse 15% 10% 5% 0% 20-30 31-35 36-40 41-45 46-50 51-55 56-60 61-65 65< Sources: 1. Age at entry by policy for inforce business as at 31 March 2004 2. Claim Statistics Analysis Lump Sum Oct 03-March 04 3. Expected average age at lapse based on MLC assumptions

  34. Sales

  35. Revenue Generated by Yr1 Ongoing Investment $? $? Risk $? $? Debt $? $? TOTAL $? $?

  36. Does it work the other way? Mrs K Age 85 Mr & Mrs A Age 60 Siblings & Families Siblings & Families Mr & Mrs B Age 35 Mr & Mrs C Age 33 Mr & Mrs D Age 29 C Jnr Age12 B Jnr Age 17

  37. Advantages to Advisers • By ensuring that the “family unit” is your client, any legacies left by your clients are automatically left to another of your clients! • Not only do you increase your revenue with less prospecting, but you also increase your business value. • Accumulator clients will be increasing their asset values, not decreasing • Risk advice with a Level Premium/Hybrid Commissionstructure is a very attractive income stream to purchase.

  38. Intergenerational Advice Mrs K Age 85 Mr & Mrs A Age 60 Siblings & Families Siblings & Families Mr & Mrs B Age 35 Mr & Mrs C Age 33 Mr & Mrs D Age 29 C Jnr Age12 B Jnr Age 17

  39. Intergenerational Advice

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