Australians need help on how to manage huge wealth transfer

Most Australians want to share their wealth with the next generation but are unsure how to transfer that wealth and need help to plan for an effective transfer. Financial advisers are well-placed to meet those needs, according to the findings of a new report from Fidelity International and independent research firm, MYMAVINS.

To help financial advisers develop investment approaches that meet the needs of retirees, Fidelity International has produced a report, “Rainbow’s End.” The report leverages a survey of Australian consumers undertaken for Fidelity International by MYMAVINS which investigates consumers’ attitudes towards the transfer of wealth to younger generations. 

Download report

“We have heard from 1,500 Australian voices, representing Gen Y, Gen X, Baby Boomers and the Silent Generation; a cross-section of everyday Australians. We have explored their expectations and discovered that while most people aspire to leave a financial legacy, far fewer have made reliable plans to do so,” said Simon Glazier, Head of Wholesale Sales at Fidelity International. 

“For many older clients, planning their legacy is a primary focus, and service offerings will need to evolve from retirement planning to estate planning to ensure their wishes are fulfilled. As it is now, a lack of financial confidence, uncertainty around retirement spending requirements and how to best organise legacy plans can become barriers to effective decision making,” Mr Glazier says.

According to modelling from the Productivity Commission, Australia is expecting to see $3.5 trillion pass from the older generations to younger generations this decade, a phenomenon known as ‘The Great Wealth Transfer’. The Rainbow’s End report reveals that while nearly 2 in 3 intending to leave a bequest have a will, less than 1 in 10 have a comprehensive estate plan to transfer their wealth and fulfil their legacy wishes.

“As many as 1 in 2 are only somewhat or not confident at all they know how to ensure their financial legacy goals are fulfilled. So while 1 in 2 Australians wants to leave a lasting financial legacy, they don't really know how to make it happen. Many people feel the superannuation system is not well designed to support their legacy wishes and this calls for expert support to navigate effectively.”

While 1 in 2 Australians wants to leave a lasting financial legacy, they don't really know how to make it happen.

The report reveals that around 2 in 5 people prefer to share their wealth as a living legacy, compared to the 1 in 5 who prefer to just share their wealth as a bequest. Almost 3 in 5 plan to leave behind their superannuation savings to their loved ones after they pass away.

Of those with plans in place to transfer wealth to younger generations, over 3 in 4 think financial advisers should play a role in teaching the next generation in financial literacy. 

“What becomes clear is that financial advisers are in the box seat to make the most of the opportunities. There is clearly a need for professional support and financial planning can play an important role here as it can help investors determine how much wealth is needed to achieve financial legacy goals and planners can also work between family members to ensure legacies are transferred fairly and as efficiently as possible,” says Mr Glazier.

“In the traditional financial planning process, estate planning plays an important but peripheral role. Legal instruments such as wills and powers of attorney are important, but the successful transfer of a lifetime’s wealth while preserving family relationships requires more careful planning than that.” 

The report reveals an important role for financial planners to act as mediators between family members when wealth discussions are undertaken.

“Most people intending to leave a legacy emphasise the importance of open discussions and documented planning with their family, but this can be easier said than done. This suggests a role for financial planners to help provide structure and mediation for these sometimes difficult discussions on how wealth can be transferred, to whom and when,” says Mr Glazier.

Helping loved ones achieve greater financial security is the top goal for leaving a legacy across generations, but there are several other less tangible goals that are still top of mind, according to the report. Aside from providing greater financial security, the top goals for leaving a legacy include expressing gratitude for family, supporting family goals, personal fulfillment, sense of purpose and preserving family values and traditions.