AKG’s research paper - 'Freedoms Revisited: Where do we go from here?
12 July 2022AKG believes the hard work has only just begun for the industry although advisers questioned say they were starting to see a genuine evolution in consumer attitudes with changes to how people prepare and save for retirement.
The paper illustrates that the return of high inflation and cost of living concerns are challenging current thinking for both consumers and advisers.
Consumer research indicates that a clear top three factors are concerning people:
- Running out of money (42%)
- Impact of inflation/cost of living (40%) and
- Care costs in older age (31%).
Meanwhile, the top two concerns that adviser survey respondents have for their clients are:
- Investment volatility (67%) and
- the Impact of rising long-term inflation (59%).
AKG conducted three separate complementary market research exercises with both consumers and advisers including a qualitative study with senior executives at advice/planning and employee benefit firms which found real optimism about the success of pension freedoms.
Alastair Black, head of industry change at abrdn said: “Whether the cost of living crisis is short or long lived, it is a reminder about the importance of financial planning. For clients pre-retirement the current economic conditions may have a long-term impact on their plans if they cannot afford to save as much.”
Communications Director at AKG, Matt Ward, commented: “Concerns around inflation and cost of living crisis are a very real threat and issue for people across the country and will have a direct impact on the considerations of pensions customers across age groups and whether in accumulation or decumulation pension phases. We have had such a prolonged period of low inflation that a lack of inflation may be almost baked into people’s assumptions and their positions/plans could be heavily destabilised.” “The industry therefore needs to be both helpful, practical and realistic in the way in which it seeks to educate and address these issues with a wide range of pensions customers.”
Our latest press release shares our recent research findings on clients attitude to risk and capacity for loss
- A third (33%) of advised individuals want less investment risk than they did before the UK went into lockdown.
- However, a quarter (27%) said they want more risk, with both groups citing capacity for loss as a contributing factor.
- Half (50%) of those that are happy to take on more risk also cited greater confidence in the advice they receive.
The coronavirus pandemic has made a third of people that receive financial advice more risk averse, as capacity for loss becomes a bigger factor in investment decisions, according to new research from abrdn.
A third (33%) of 1,000 advised individuals polled by abrdn said they now want to take less risk with their investments than they did before the UK first entered lockdown in March 2020.
When asked why their risk appetite was lower, half (51%) pointed to a change in their investment or financial priorities and two in five (42%) cited a reduced capacity to absorb loss.
This compares to just over a quarter (27%) of advised individuals who now want to take on greater investment risk. Half (50%) of this group said they are happy with more risk because they feel more confident in the advice they receive, while more than two fifths (42%) said their capacity for loss had increased.
Alastair Black, Head of Industry Change at abrdn, said: “Seismic events like Covid-19 can cause big shifts in investor risk appetite. However, the divide we’ve identified between those who now want less risk and those who want more is considerably more significant than we expected. It confirms the uneven financial impact of the pandemic, and the challenge advisers are currently facing to support clients with very different outlooks.
“The research also underlines the link between capacity for loss and investment risk, and how the former is having an even a bigger effect on client decision making in the wake of the pandemic. This comes almost five years after the FCA said advisers must consider capacity for loss during suitability assessments, both separately from, and in addition to, attitude to investment risk.
“Looking ahead, it’s encouraging to see those that are happy to take on more risk cite confidence in their adviser. This shows how invaluable advice has been during such a turbulent financial period, and the value advisers will continue to deliver as clients shape their portfolios as the UK’s enters a new phase of its post-pandemic recovery.”
Our research explored how generations’ different attitudes to money could affect wealth transfer, and how advisers are developing advice relationships with clients’ family members amid the ‘Great Wealth Transfer’:
- A third (32%) of baby boomers (aged 59-77) are reluctant to pass their wealth to someone with a different attitude to money than them
- Members of ‘Gen Z’ (11-27) are significantly more likely to take a short-term approach to money than generations before them
- Generational differences in attitudes exist, highlighting issues for inheritance planning
- Nearly nine in ten (87%) advisers have a relationship with clients’ children, grandchildren, or both.
A third (32%) of baby boomers (aged 59-77) are less likely to pass their wealth to someone with a different attitude to money than them, according to new research from abrdn.
This could pose challenges for estate planning as abrdn’s research also revealed significant differences in financial attitudes between generations.
Across the entire population, more people prioritise making financial sacrifices for their future wellbeing than those that prefer to spend in the ‘here and now’ to live life to the fullest (58% vs. 31%).
However, at a generational level, the proportion of people who prioritise a short-term financial outlook is significantly higher amongst ‘Gen Z’ (11-27, 39%) than baby boomers (22%) – a mismatch that could colour older generations’ wealth transfer decisions.
Overall, 90% of people plan to pass money on to family or friends in their lifetime or on death – with more people planning to do so during their lifetime (51%), than those that plan to do so after death (39%).
The single most common way people plan to pass most or all of their money on is by lifetime gifting to the generation below them (e.g. children, nieces or nephews) (28%), followed by passing wealth to someone in their own generation (e.g. a spouse or partner) after they die (23%).
Jonny Black, Strategic Director, abrdn, Adviser, said: “Advisers have a critical role to play in helping clients transfer wealth in ways that accommodate their concerns.
“For example, trusts could be the perfect option for allowing clients to gift to the next generation, while still retaining a degree of control. Clients will value advisers’ support in understanding the full range of available options, and in navigating the complexities of setting them up.”
abrdn’s research also explored the extent to which advisers had relationships with other people in clients’ families.
Nearly nine in ten (87%) advisers have a relationship with clients’ children, grandchildren, or both. Meanwhile, just over a quarter of advisers (29%) report that they have relationships with more than one family member for more than half of their client base.
Jonny Black added: “This is the era of the ‘great wealth transfer’ – trillions are set to be passed into new estates in the decades ahead. While younger generations’ attitudes to money may be different to those older than them, they’ll still need support in managing any inheritance they receive in line with their financial priorities, whatever they may be.
“Advisers will be invaluable here. It’s encouraging to see that so many have already invested in building relationships with clients’ family members – including the younger generations. Firms should be continuing to review opportunities to start or develop these cross-generational connections. Done well, it will pay dividends for all involved.”
Methodology
Survey of 302 UK financial advisers regulated to give financial planning advice on long-term savings like pensions and ISAs, conducted by Censuswide on behalf of abrdn in November 2022.
Take a look at more of the findings our adviser research has revealed.
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